We believe that ESG is very important
The acronym ESG stands for Environmental, Social & Governance. It means that factors such as energy, climate influence, reuse of resources, health, safety and good corporate governance are taken into account in the selection and management of portfolio companies.
A number of
recent studies have shown that companies that perform well on environmental,
social and governance structure, earn better shareholder results in the
longer term. (For example the Eurosif SRI study of 2014). This is substantiated
by the positive correlation between ESG ratings and the risk adjusted returns
of the assets. Furthermore, we believe that in the coming times,
sustainability of business models will become even more significant in
determining the long term market performance of companies.
We only invest in ethically responsible companies
Our investment in ethically responsible companies is based on a four phase procedure.
Negative screening and Sector exclusions
To start with, we exclude certain sectors on ethical and mission based requirements from our investible universe to ensure our investment universe is comprised of socially and environmentally sustainable companies. Examples of excluded sectors are weapons, tobacco, etc.
Best in class approach
In the second phase, we consider the publicly available ESG disclosure scores. This is a best in class approach that helps us formulate a picture of ESG performance of the company.
Firm level analysis
In the next step we deep dive into a rigorous firm level analysis or a norm based screening, where we evaluate the performance of the company on a set of 30 ESG parameters, to evaluate the ESG performance of the company with respect to its peers and on a historical level.
In the final phase, we also engage in a suggestive role to improve the ESG performance of the companies that we invest in.
Proxy Voting at Value Square in 2019
At value Square we believe exercising our proxy voting right forms an integral part of our fiduciary duty as asset managers. Even before we signed up to the principles of UN PRI, Value Square actively participated in general meetings of companies in Belgium and raised critical questions to the benefit of all shareholders.
Since signing up to UNPRI we have increased our focus on proxy voting participation every year. In 2019 we voted in 68 meetings of 56 companies. This represents above 98% of all companies where we could have voted (by weight of assets in portfolio as of 31st March 2019). We do note that for a number of companies we own preferential shares where we do not get voting rights. In most of these cases we undertook engagement separately in cases where we felt the need for. In addition, in most of these cases the discount compensates for voting rights.
How many proposals did we vote upon in 2019?
In 2019 we voted on 798 proposals. A majority of these were on directors election and routine business related. About 153 proposals were related to compensation of executives and board. Executive compensation is an important indicator of corporate governance code for a company. Value Square's voting policy on compensation emphasizes on the need for incentivizing long term value creation for shareholder.
In how many instances did we vote against management in 2019?
The decision on voting for or against management recommendations are based on principles defined in our voting policy (included in our ESG policy). For the current year, we voted against (or abstained) management recommendations on 42 proposals. This represent about 5% of all proposals where we voted.