Responsible Investing Update
August 29, 2022
Since publishing our inaugural Responsible Investment report last year, NS Partners has continued to make progress in this ever-evolving world of responsible investment. Over the past twelve months, we have seen an increased interest in how we address Environmental, Social and Governance (ESG) factors in our investment process from clients and investee companies. It is clear that these factors represent a central tenet in the investment landscape and, as an asset manager with a fiduciary duty to our clients, NS Partners is committed to continue making progress on our own responsible investment processes.
In October 2021, NS Partners began utilizing third-party ESG data from MSCI, which has broadened our sources of ESG information and enhanced the depth of our analysis capabilities for our portfolios. NS Partners recognizes the limitations that surround third-party ESG data, such as the low correlation across various third-party vendors’ ESG scores and ratings. We will continue to carry out our own internal research to capture a more complete picture of companies’ ESG risks and opportunities and ensure the materiality of the factors that are integrated into our company analysis.
In this report, we are pleased to share highlights and accomplishments with respect to our ESG approach.
Task Force on Climate-related Financial Disclosures
We are extremely pleased to announce that, in summer 2022, NS Partners have become official supporters of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Established by the Financial Stability Board, the TCFD provides disclosure recommendations designed to help companies provide better information to support informed capital allocation. The recommendations are structured around four themes: governance, strategy, risk management, and metrics and targets. As supporters of the TCFD, NS Partners will publish its own TCFD-aligned disclosure, which will describe our approach to identifying, assessing and managing climate-related risk in our investment process. Additionally, we will continue to engage with the companies in which we invest to encourage further adoption of the TCFD recommendations.
Portfolio Carbon Footprint
NS Partners monitors the carbon footprints of our portfolios on a quarterly basis, we are consistently below our respective benchmarks in terms of weighted average carbon intensity.
Chart 1: Portfolio vs Benchmark Weighted Average Carbon Intensity
At NS Partners we continue to use proxy voting as an important means to influence responsible conduct at investee companies. As stewards of our client’s capital, we have a fiduciary duty to vote proxies in the best interest of our clients. We use our voting rights as a route to engage with issuers and give a voice to our views.
Over the past year, NS Partners has voted 4,456 proxy votes and voted against management’s recommendation on 9% of the resolutions. Details regarding these votes are summarized in the table below.
Table 1: Proxy Vote Results
Proxy Voting Engagements
In addition to exercising our votes we reach out to companies to engage on proposals that do not align with our voting policy, seeking to better understand the issues raised and enter into a constructive dialogue with investee companies.
The Home Depot
In May 2022, NS Partners engaged with The Home Depot prior to the company’s annual general meeting regarding a shareholder proposal calling for the company to report on its efforts to eliminate deforestation in its supply chain. Although the company shared that its Wood Purchasing Policy discloses its policies and partnerships for managing deforestation in its supply chain, we noted that the company does not disclose the proportion of wood sourced from certified well managed forests. NS Partners felt that shareholders would benefit from additional information on the company’s efforts and would allow them to better assess how the company is managing risks in its supply chain. The proposal passed with a majority of shareholders supporting a report on its strategy to manage its supply chain’s impact on deforestation.
Honeywell International Inc.
In April 2022, NS Partners voted in favor of a shareholder proposal calling for the company to report on how the company’s lobbying activities and the lobbying activities of trade groups and other organizations the company belongs to align with the Paris Climate Agreement goals. Although Honeywell International had recently published a climate lobbying report, NS Partners supported the proposal on the basis that shareholders may benefit from a more comprehensive evaluation of the climate lobbying being conducted on the company’s behalf.
Engagement continues to be a key part of NS Partners’ approach to ESG and Responsible Investment, it is an opportunity to create positive change at investee companies.
Climate Action 100+
NS Partners continues to progress with our participation in Climate Action 100+, an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. As part of this initiative, NS Partners has signed on to participate in the collaborative engagement with holding Lockheed Martin. The group has engaged in calls with Lockheed Martin throughout 2021 and 2022. In the most recent engagement in June 2022, the group discussed Lockheed Martin’s climate-related goals and targets. Specifically, the group discussed the efficacy of joining an initiative such as the Science-based Targets Initiative (SBTI) to guide their emissions goals and targets. Lockheed Martin shared concerns in joining the initiative, as they would be committing to set targets on their Scope 3 emissions. Given the end-users of Lockheed Martin’s products, the company argued that they have little control over the use of their products. NS Partners plans to continue to monitor and engage on the company’s progress on these issues.
Following the Russian invasion of the Ukraine in February this year, many companies ceased operations in Russia in response. There were a small number of companies that continued to operate in Russia despite the widespread condemnation and sanctions imposed. We reached out to a number of these companies to understand their position on continuing to conduct business in Russia and whether they were considering any plans to exit these businesses. We received a low response level from the emerging market companies we sought to engage with; however, the European companies were more willing to have a dialogue. Pharmaceutical companies Roche Holding and AstraZeneca have ceased to recruit new patients into trials in Russia but will continue to provide life-saving drugs in-line with International Humanitarian Law, which is a position we can appreciate. Building materials company, Sika, has scaled back operations and is considering its options for the small division that continues to operate in Russia. We will seek to engage with the company again on the outcome of such considerations. French construction company, Vinci, owns stakes in two motorway concessions in Russia, these are a negligible portion of their capital employed and as such the company appear less willing to address investor concerns. We will seek to re-engage with the company to assess progress. Finally, consumer staples giant, Nestle, did not wish to comment on the details while they assess their options, and as such, NS will request an update from the company in the coming months.
Chart 2: Average Female Board of Directors
Chart 3: Average Board Independence
Chart 4: Percentage of Issuers with a Separate Chair/CEO
MSCI ESG Profile
As referenced earlier, NS Partners recently subscribed to MSCI’s ESG data. From an ESG integration standpoint, this data has enhanced the resources available to our investment team as part of their bottom-up stock analysis. Our investment team uses this third-party data to complement our own in-house ESG research.
The ratings of our portfolios are higher or in-line than the benchmark in all but one case. The NS Partners Global fund holds an off-benchmark position in the NS Partners Emerging Market Fund which reduces the overall rating to one notch below its benchmark. In addition, our ESG Rating is above the respective benchmarks across our portfolios, again with the exception of the NS Partners Global Equity fund. Also of note is the larger proportion on ESG ‘leaders’ in all our portfolios versus their benchmarks.
Table 2: ESG Ratings
Chart 5: Weighted Average ESG Score
Chart 6: ESG Ratings Distribution