In this edition:

Testing the water
As a follow up to an engagement on water use with a brewery we hold, our Head of ESG took the opportunity to conduct a further fact-finding engagement, visiting the company’s “best in class” brewery in the water-stressed region of North Mexico. Having identified water use as a financially material risk for the company, our engagement enabled us to gain on-the-ground insights into the measures used by the company and brewery to manage the risks associated with water scarcity.

Investing in people
Diversity, equity & inclusion (DEI) is both a financially material risk and opportunity for a European multinational software company we hold. We met with their Chief Diversity & Inclusion Officer to discuss how they are identifying internal candidates and supporting development to ensure female employees are in a better position to be promoted, enquire about data disclosure around DEI, and discuss the setting of effective targets around racial diversity. Overall, we believe that their new Chief Diversity & Inclusion Officer appears to be an effective and focused leader, driving the right DEI strategy and culture in the business.

Climate change – can insurers stand the heat?
Record temperatures and recent wildfires have brought further evidence that the climate is changing. With weather patterns more extreme, unpredictable and therefore costly, how will the insurance industry adapt? And what about re-insurers? While the protection gap may present a financially material opportunity for insurance companies, increasing insurance coverage increases the liabilities of those doing the insuring. The insurance companies control an essential aspect however – price, which we believe is one way they can manage this financial risk.

The devil is in the detail: carbon targets 101
A look at the key differences between carbon neutral and Net Zero, the basic building blocks involved in setting carbon reduction targets and why we believe targets approved by the Science Based Targets initiative (SBTi) are credible and consistent.

Executive pay: “Show me the incentive and I will show you the outcome”
As long-term investors, we want the companies we invest in to have pay plans in place that encourage longer-term thinking over short-term opportunism. We created the Pay X-Ray as a framework for a comprehensive and rigorous analysis of company pay schemes. In this piece we talk through what we do and don’t like to see in executive pay plans, as well as giving case study examples of how we use proxy voting to emphasise our point.

Risk Considerations
There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market value of securities owned by the portfolio will decline. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. Changes in the worldwide economy, consumer spending, competition, demographics and consumer preferences, government regulation and economic conditions may adversely affect global franchise companies and may negatively impact the strategy to a greater extent than if the strategy’s assets were invested in a wider variety of companies. In general, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. Stocks of small- and mid-capitalisation companies carry special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility. ESG strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance.