Understanding the need to be more socially conscious is clearly on the rise on a global scale. Although all moving in the same direction, driving forces behind this trend vary per country. In the US for example, politics, labour shortages and consumer sentiment seem to be giving this once-fringe practice greater prominence. In other markets, regulation has been a greater driving force. Global themes such as demographic shifts and the current and potential future implications of climate change are focusing the minds of management teams from Brazil to Japan to Sweden.
Similarly, those sectors most exposed to ESG risks or whose products inherently have a positive impact have unsurprisingly proven the most receptive or aware – for example, oil and gas, financial services, utilities and healthcare companies. Those in the technology sector or part of an industrial value chain are often at a more nascent stage.
While we do see cross-country alignment to becoming more socially conscious, we have witnessed a varying understanding of the United Nation’s Sustainable Development Goals (SDGs) across the global map.
Therefore, we draw on the deep, global stewardship experience of Hermes EOS, our stewardship and engagement team, and take a localised approach to engagement. This allows us to tailor our approach appropriately with companies across different countries and industries. Corporate boards and management teams have so far welcomed our ability to share the best practices we have observed elsewhere – and to make connections in order to establish mutually beneficial relationships.
Most of the US companies in our portfolio have been remarkably open to engaging with us on the SDGs. The positive US corporate response is in keeping with our hypothesis that while American companies often lag international peers in their public commitment to sustainability, the agenda is rapidly gaining traction. In particular, mid-sized companies are well-positioned to leapfrog counterparts. We saw notable progress towards SDG targets at a number of US firms including a large US healthcare staffing business. We have been very encouraged by the leadership of this company and their recognition that it is well positioned to address the issue of pay inequality among US doctors and nurses. The company acknowledges that it has a personal and professional responsibility to use its abundant resources to do good and help others.
Latin American companies constitute only a small proportion of our investments, but during 2018 we held productive conversations with all firms from the region in the portfolio. We had a constructive call with the CEO of one of the largest banks in the region, in which he agreed that the institution should be doing more to expand consumer access through technology and tailored product developments. During the year ahead, we aim to explore with the company how it might establish collaborative partnerships, tailored products and alternative distribution channels. Through such initiatives, we believe the company has great potential to raise the levels of savings and financial security within a country where a high proportion of the population is underbanked.
In keeping with the growing awareness of environmental and social matters among European companies, we engaged in productive dialogues with a number of listed companies in the region. We hope to report on more positive outcomes in the near future. We have witnessed progress so far with companies such as an Irish property development company. It has embraced our agenda to go beyond the efficient use of natural resources to generating greater positive impacts through its sub-contractor and building management relationships.
We have been pleasantly surprised about the willingness of our Asian holdings to engage in constructive dialogue. One company that has made encouraging progress following engagement is a highly-innovative Hong Kong-listed power tools company. It has recognised the need for increased levels of due diligence through its supply chain. The company has highlighted its suppliers of cobalt (used in lithium-ion battery manufacturing) for particular attention.
We have so far found a generally receptive response among the companies we have approached. Clearly, purposeful engagement is resource-intensive and demands pragmatism and patience from all parties. Results cannot be achieved overnight, but those companies showing a willingness to change and making positive steps through a collaborative and tailored engagement approach, are worth waiting for.