Global Value Investors and UN Principles for Responsible Investment
The UN Principles for Responsible Investment (www.unpri.org), set out guidelines for investment decision-making and ownership practices. This covers environmental, social and governance (ESG) issues.
The intention is that companies will be pressured to improve performance in these areas, and thereby become more sustainable. Adoption will lead to a closer alignment between the objectives of institutional investors and those of society at large.
Moreover, it is anticipated adoption of the principles will lead to improved long-term performance of investment portfolios.
The Principles
While the principles are voluntary and aspirational, signatories are obliged to:
- incorporate ESG issues into investment analysis and decision-making processes
- be active owners and incorporate ESG issues into ownership policies and practices
- seek appropriate disclosure on ESG issues by the entities in which they invest
- promote acceptance and implementation of the principles within the investment industry
- work together to enhance the effectiveness in implementing the principles
- report on their activities and progress towards implementing the principles.
Global Value Investors' Involvement
GVI is a signatory to UNPRI. As an active value manager with a long term time horizon, GVI's investment philosophy is based on the premise that a company's share price will eventually reflect its underlying value. This philosophy leads GVI to focus primarily on the longer-term underlying valuations of companies. One of the key influences on a company's value is ESG issues. GVI recognises that companies with good ESG records are likely to be good for underpinning investment returns. Specifically, our level of confidence in a stock's current and future earnings is ranked. The earnings of companies with a good ESG record, among other factors, are likely to be less volatile and therefore more predictable in nature. Thus, a company with a good ESG record - signifying high earnings confidence - is likely to be ranked closer to one, while one with a poor ESG record is likely to be ranked closer to five. The confidence ranking is considered alongside valuation for the purposes of portfolio construction.
GVI uses Regnan's ValDA portfolio analysis system to analyse potential ESG scenarios in our portfolios. For instance, carbon emissions exposures, both at the individual stock level and for the portfolio in aggregate. We also utilise specialist ESG broker reports. With respect to voting, GVI actively reviews and participates in voting opportunities at company meetings. We use proxy adviser RiskMetrics to provide direction on our voting. GVI has a 'Corporate Governance and Proxy Voting policy' and full records of all GVI's voting are maintained. For all companies in GVI's portfolios, upon receipt of a notice of a meeting, the Analyst/Portfolio Manager responsible will review the resolutions to be put to the meeting. In the event that there are issues of substance, the Portfolio Manager will table these at the daily Investment Team meeting for discussion and agreement of the GVI position on the issue. For all other (routine or non-controversial) resolutions the Portfolio Manager will determine GVI's position.
GVI has a reputation for encouraging good ESG practices in the Australian equities market. By agitating for change, GVI seeks to unlock the inherent value in a company to achieve a superior outcome for GVI's investors. Indeed, for the past 10 years GVI has engaged more than 50 companies on over one hundred occasions. This metric alone highlights GVI's active corporate governance record.