Thematic updates

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Gender diversity

During 2019, we considered the representation of women at senior management level and below

Target: 5.1, 5.5
Issue: Corporate governance

We continued our engagement on board diversity with companies in Canada, the US, the UK, Japan and Germany. In Germany, we also addressed issues around diversity below the board, e.g. senior and middle management, with all DAX30 companies.

Despite a 30% quota for Supervisory Board diversity, German corporations lag peers at senior management levels. We set out our best practice expectations on strategy and targets, flexible work arrangements, hiring procedures, gender pay gap assessments, employee surveys, and education and training. Our engagement revealed more awareness on the issues than had been apparent from their public disclosure – but practice varies widely. We will continue to engage German companies.

on our expectations, focusing on those that have either not responded to our engagement or remain laggards.

Our engagement in Japan also developed throughout the year. There are clear demographic challenges for the country that raise the importance of attracting and retaining the widest talent pool possible, regardless of gender. This market is clearly at an earlier stage of development culturally on the topic, but companies are establishing initiatives to capitalise on the benefits of a more diverse workforce.

Discover our latest update on gender diversity in our ESG Viewpoint.

Antimicrobial resistance (AMR)

Antimicrobial resistance is a natural phenomenon being accelerated due to poor stewardship of antibiotics in healthcare and farming

Target: 5.1, 5.5
Issue: Corporate governance

We engaged pharmaceutical companies, food producers and food retailers on their approach to AMR issues.

Drawing on the research of FAIRR Initiative* – a collaborative investor network that raises awareness of the material ESG risks and opportunities caused by intensive livestock production – we initially focused on food companies, which could be materially impacted by a decline in livestock production as a consequence of untreatable diseases. Our engagement highlighted the importance of robust antibiotic-focused policies and commitments, as well as clear timelines for phasing out the routine, non-therapeutic use of antibiotics.

Our discussions with pharmaceutical companies were informed by the research which underpins the Access to Medicine Foundation’s AMR Benchmark. Significant economic and scientific barriers hinder the discovery and development of novel antibiotics; however, new business models may facilitate innovation. We also focused on

environmental risk-management in manufacturing and appropriate stewardship, highlighting the importance of site audits and setting discharge limits, as well as education on appropriate antibiotic use.

Our engagement revealed that companies are well-informed about the risks of antibiotic overuse. It is now unusual for European food and pharmaceutical companies not to have an antibiotic policy. However, very few food producers have committed to phasing out the use of antibiotics that are important to human medicine, and transparency varies.

In 2020, we will build on our dialogue with companies, broadening the scope of our project to include animal health companies, and will continue to benchmark best practices and encourage more robust commitments on addressing AMR.

You can learn more about our engagement on AMR in our ESG Viewpoint.

One of FAIRR’s key engagement projects is improving antibiotics stewardship in livestock supply chains, and we joined BMO GAM at the 2019 PRI in Person conference to explain how engagement can make a meaningful difference.

KJo Raven, Engagement Manager, FAIRR Initiative

*Farm Animal Investment Risk and Return

Fast fashion

Shorter fashion cycles provide clothes cheaply and quickly to consumers, but negatively impact people and our planet

Target: 5.1, 5.5
Issue: Corporate governance

We engaged with 18 companies on issues around ‘fast fashion’ in 2019. The last ten years have seen significant changes in the ways that clothes are being manufactured, shipped, sold and used. Fast fashion is a result of massmarket retailers increasing the production of inexpensive fashion lines to meet the demands of quickly changing trends – with significant impacts on workers and the planet. A small number of the companies we spoke to have implemented robust practices to mitigate the environmental and social impacts linked to the production of apparel. These include holistic frameworks and system

to support circular economy principles that incorporate oversight of environmental and social supply chain risks, R&D efforts on innovative, more sustainable materials, consumer education efforts and accountability of senior management and the board. The majority of the companies we spoke to are aware of these issues, yet need to take more decisive action in terms of policy development and implementation. Going forward, we will continue our dialogue on some of the issues raised by this project, such as materials stewardship, waste management and supply chain labour standards.

Living wage

Companies that pay a living wage will reap the benefits of happier employees and a stronger bottom line

Target: 8.8
Issue: Labour standards

In 2019, we sought to engage 10 large retail companies from the US, the UK, Canada, Japan and Germany, employing in total 3.7 million workers, to start a dialogue with them on the business case for a living wage. Our engagement has improved our understanding of companies’ approaches to setting wages and allowed for informed discussions on the obstacles to commit to paying a living wage. We have asked

for enhanced disclosure on wage levels and plan to extend our asks to time-bound targets on wage level adjustments. We have taken steps to engage collaboratively on this issue – we started a collaboration with other investors to increase pressure, particularly on disclosure, and joined ShareAction’s Living Wage coalition and reached out to 15 large UK companies to encourage them to pay their staff a living wage.

Sustainable banking in ASEAN banks

The ASEAN region’s high exposure to environmental and social megatrends calls for banks to strengthen credit risk management

Target: 5.1, 5.5
Issue: Corporate governance

We engaged with 16 banks from 5 countries on their governance structures and systems for environmental and social risk management, preparedness for sustainabilityrelated regulatory developments, and steps to contribute to the transition to a low carbon economy. We had enhanced engagement and repeated dialogues or meetings with 9 banks from 4 countries.

While Singaporean banks seem comparably well prepared, banks in other ASEAN countries are still establishing dedicated sustainable finance and/or environmental and social risk teams, while their senior managers have mostly acknowledged the need for enhanced attention. None of the banks

have a satisfactory level of disclosure of their ESG lending and underwriting policy, and none could show dedicated procedures for monitoring regulatory developments and climate risk management. Whilst some banks have launched sustainable/low carbon finance products, e.g. Bank Rakyat’s issuance of a sustainability bond, this is not yet an established practice in the region.

We will monitor progress and plan to leverage on the relationships built to continue our conversations on sustainable and climate-related banking issues.

Engaging towards zero deforestation

Deforestation received global media attention in September 2019 amid the extensive Amazon rainforest fires

Target: 15.1
Issue: Environmental stewardship

However, we began work on this theme long before, acknowledging deforestation as a key driver of climate change. Companies exposed to deforestation are vulnerable to operational, financial, regulatory and reputational risks. In 2019 we engaged on this matter extensively, covering:

Banks on their lending and underwriting practices, to encourage proper environmental and social risk management systems, including zero deforestation commitments, and policies for key commodities such as dairy and cattle, soy, palm oil and timber.
A small group of fast-moving consumer goods (FMCG) companies in Asia on sourcing standards for palm oil, soy, sugar, and paper and packaging.
Palm oil producers in Malaysia and Indonesia on their readiness to adopt the new Principles and Criteria requirements of the Roundtable on Sustainable Palm Oil, specifically on deforestation, labour standards, and smallholder integration. Discover the details of this in our ESG Viewpoint
Companies with natural rubber in their value chain on dedicated anti-deforestation and no exploitation policies.

Alongside our individual engagement, we participate in various

collaborations. This includes two led by the UN Principles for Responsible Investment: one focusing on sustainable soy production, the other on palm oil.

We are also involved in collaborations led by the FAIRR Initiative, including one addressing the impacts of meat processing on forests; and another on the production of alternative proteins.

Together with other investor groups, we signed a broad set of expectations statements, covering:

Deforestation in the soy supply chain.
Palm oil value chain expectations including banks (no deforestation, no planting on peat, no exploitation policies).
Amazon fires – clearer commitments from companies operating in the region.
Cerrado Manifesto Statement of Support.
SPOTT – Sustainability Policy Transparency Toolkit, which provides helpful insights for corporate analysis across various soft commodities including palm oil and rubber.

Companies’ zero net deforestation efforts are necessary for resilient supply chains, safeguarding the world’s forests, and for sustainable portfolios.

Nina Roth, Director, Responsible Investment

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