I'm going to briefly touch upon how we approach the issue of labour rights, but I would like
to start with a more original actually made about Australia. You're obviously much more
connected to the Asia Pacific region than Europeans are, and I was in the US two weeks
ago talking about sustainability. And it's the way we, or the way these countries approach
is pretty different from the way Australia does. Sustainable is definitely more on the
agenda in Australia than it is in the US. It's becoming much more important in Europe
too, with the UK, the stewardship code becoming more important. But it's still for many people,
certainly if you're talking about labour rights and supply chain issues, it's still far from
a bad show for many in Europe and the US. Now, if you look at how CANDUM, the moderate actually
explained that CANDUM stands for Conviction and Responsibility and Asset Management, approach
it before elaborating on the labour rights issue. If you allow me, I will take the time
to explain how we approach ESG. CANDUM is actually an asset manager who is covering nearly
all asset classes that were engaged in equity, fixed income, even asset allocation. And currently
we're managing about 20 billion under the broad ESG umbrella. Our approach is probably
a little different from many others in our sector in a way that we have a very balanced
view on ESG. For us, sustainability has many dimensions. And we have actually built a framework
around the three topics, environment, social and governance. And obviously if you talk
about labour rights, labour rights comes into play when you're talking about the social
issue. For some kind of sector, that might be one of the key issues. The way we do it
actually is we have kind of a best-in-class screening. And that best-in-class screening
has two evaluation frameworks. So we have like a top-down view where for each sector we look
at the long-stone sustainable trends. And if you really look at labour rights, supply
chain, where we're really starting to look at this kind of issues is in terms of health
and wellness from our top-down view. But going more into detail, we have also a bottom-off
view where we really look at the micro-perspective. That's our stakeholders' perspective. And
we have six pillars, and the most traditional ones are investors, employees, suppliers,
customers. So part of our micro-stakeholder perspective where labour rights are very
key is obviously in employees and supply chains. But for us as a global asset manager, we're
still very global. Most of our funds we're selling are developed markets and emerging
markets. So it's a very global perspective we take on ESG. I think in terms of labour
rights and supply chain, the biggest problem for us and for our teams, or we have a dedicated
analyst team who's doing analysis on all the environmental, social and governance issues
that these sectors confront with, the biggest problem is probably mapping the supply chain
because it's not only the first layer, it's also suppliers, it's about recruiters, it's
about labour brokers. So this is the whole area that we're doing analysis on and looking
at how labour rights are respected. And from that regard, we're looking at very broadly,
we're looking at do they respect the international standard, so the international labour office,
what's their code of conduct, how are they auditing this kind of stuff. The biggest problem
here is obviously is traceability and risk assessment. So for our analysts, probably if
you look at each sector in itself, our analysts are doing a review every one to three years.
Each review takes a lot of time and probably the biggest chunk is engaging with companies
because it's partly educational. First of all, because many companies are still not convinced
that it's important from a regulatory perspective, from a reputational perspective and that's
why I think investors are pretty important here. We have a role to play and that's what
our analysts are actually doing, it's an interaction. So when you're trying to convince companies
of the importance of issues that we're working on, labour rights are obviously one part of
it. You're trying to educate them and on the other side, it's getting information from
them.
People when you're talking about education, I suppose, for all of you, do you feel you're
actually accessing that level of the organisation when it comes to their decision making on
typical issues in the supply chain? How's that going?
Yeah, okay. I think, like Gershaw mentioned before, I think the Rahmat class of unit collapse
was really a catalyst for change. So in the aftermath of that, we've had some major conversations
with both management of listed retailers, but also boards, and I think gradually there's
been more and more interest in actually getting to know the details. Now, there's a broad
spectrum. On the one hand, they have companies where they apparently service these things.
In other cases, you have boards where the chairman or other directors might actually
be personally very involved in these issues. So I think it's a bit of a mix actually, but
definitely, I think the Rahmat class was that catalyst that Gershaw said it as well, sort
of had to happen to bring that issue to the forefront. I think that was the name of the
interviews and that.
I think Kmart was one of the great examples of that. Guy Rosso was out in front of the
media straight after saying, we thought we had some of these issues covered, we had no
idea how bad they were. And because it was happening at that level, the executive level
of the organization, they've gone from being one of the, in terms of our grading systems,
one of the poorly graded companies to one of the best performers. And that's because
there has been that board level of engagement and executive level of engagement to improve
systems. And that's consistently what we find, that boards, when the boards are involved
and when the executive are involved, you get much better outcomes in terms of how they
invest in this and progress these issues. But the motivations for those groups being
involved vary. So if a media story blows up enough time in the face of the executives,
then they'll get concerned and then they'll want to get educated about these issues. So
that's speaking from a campaign of perspective, I suppose it's different, a little bit different
from the investor perspective. But I'm sure it's the same risks to the brand reputation
that allows these ESG conversations to open up when you're an investor coming in. So increasingly
because there's been so much attention on it here in Australia, we find that we are
engaging at the executive level, at least and occasionally at the board level as well.
And certainly in talking to sustainability managers, that's the big moment of opportunity
when there's some kind of crisis and there's a lot of, you know, obviously just stranded
assets. That is the... That's probably the biggest issue. What we're trying to do is engage
with companies and by explaining our process. So in Europe, I think in Europe sustainability
has evolved quite a bit. Been very popular in France for a very long time. UK coming on board
now. Germany too. Legislations different, obviously, in all these kind of countries. But we're still
seeing that we still need to educate companies on why it is important because for many it still
feels like the reputational risk is important. But that's one issue, reputational risk. For
it's more like how it brings value to a company and there's still a lot of education that's needed
from a corporate perspective, I think. As an asset manager too, obviously we work with data
and companies are not used. Certainly if you talk about supply chains, they're not used to
getting data from their supplies, sub-supplies. That's even a bigger issue. So by engaging with
these kind of companies, educating them on what is important, they're kind of forced to
obviously kind of come do it on their own. But if more and more investors are embarking on this
mission, I think companies gradually become convinced of the importance of ESG, not only
from a reputational perspective. Because for me, reputation is one thing but it's too negative
because you're most often talking about the blow-up events which are always very unfortunate
and it's kind of wake up call for a company. For it's more like being anticipating, trying to
anticipate and trying to educate them on how to avoid these kind of reputational events.
I know that investing for a lot of clients is a journey more than anything. A lot of these
considerations go from subvenium to long-term views. How do you manage the conversation when it
comes to short-term performance as we showed in our book, peer-relative bias when they look at performance?
That's a very good question actually. That's one of the...
Let me put it this way. For me, like I said before, it's an issue obviously. If you look at
sustainability from a risk perspective like regulatory risk, reputational risk, that's
definitely an issue but I prefer to approach it from a much more broad view in terms of risk return.
For me, sustainability, it's still very intangible but it does have an impact on the long-term risk
and return of a company. For me, incorporating sustainability into an investment strategy
is very similar to what the more traditional managers do. If you want to be a prudent investor,
you incorporate as much information as possible and it's still very financially driven. Why? Because
obviously if you look at financial data available in terms of counting statements, we have a history
of nearly 40, 50 years in terms of publishing financial data. In terms of sustainability,
it's still very in its infancy but it's very important and the way we're trying to convince
investors is take that long-term view because you cannot expect sustainability to materialise
over the short run. When you look at the investor perspective on this, there's a lot of different
considerations. I mean, if you look at, if you're starting from this brand, so brands are
often the equivalent of being proportional to a company's market capitalization but they're also
very vulnerable and they're also very time-consuming to restore if they get damaged.
That can happen in short-term, it can happen in long-term, so that brand risk is always going
to be there. I also think you can look at supply chain management as a bit of a proxy for management
quality which I think we're limited to as well. If I meet with a company today and I feel that paying
lip service to labour rights issues in Bangladesh three years after Rana Plaza, I think it tells
me something about the quality of that management. When we invest in companies, we do our own
proprietary ESG research and that feeds into all those four stages of our investment process, so
macroeconomic analysis, sectoral stock selection and portfolio construction and
ultimately what we want is to invest in companies that have sustainable earnings.
We want to invest in companies that have good management quality. I think ESG on the whole
can be a good assessment of management quality, so it's a bit of a proxy there. So the other thing
is even though an issue might be long-term by nature, it's going to play out over a long time,
the way a company is preparing for that now I think is another way to gauge management quality,
so if they're not paying attention to long-term issues, well, it says something about their own
investment horizon and how long they must stick around with the company.
And then the last part I think is active ownership. So when you invest in a company,
you want to reduce the risk of value destruction and I often with engagements on these issues,
I think there's a win-win situation, so investors can be better off, companies can be better off,
but also the work is at the end of a chain. Doesn't necessarily work. Does collaboration
on things like the Bangladesh Fire and Safety Accord or broader, almost pre-competitive
pushes on some of these issues allow Australian retailers to punch above their weight in terms
of their absolute dollar spend in some of these developing countries? Yeah, a collaboration
I think is key. If you take it back to say five or six years ago, many companies were very
unwilling to share the location of their suppliers. It was considered IP and it took you back in 2015
and 16 and suddenly a lot of listed retailers are now published the list of names that they're
sourced from. So that's been a big change. I think there is much more collaboration today
than they used to be and certainly when you go to a manufacturing hub like Bangladesh and China,
it seems to be the case that all the retailers seem to know whose sourcing can wear anyway,
so it's not like it's been a major secret. The Bangladesh Accord I think was a bit of a game
changer in the sense that it was a multi-stakeholder framework. So not only were the retailers
collaborating with each other but also NGOs and unions. And if you look at some of these issues
like living wage issue for instance, it is a multi-stakeholder issue. You need to have governments
and probably retailers, unions and NGOs involved for those things. So I think we'll see more of
those multi-stakeholder frameworks going forward because I think that's needed to make that change
happen. Collaboration serves many purposes obviously and that's one of the issues. But for us it's more
like Gerson said that you try to leverage each capabilities and obviously NGOs, media has
role to play other stakeholders like governments and investors. And for us collaboration is also
an issue of transparency in terms of collecting data. We have a big analyst team but still
to have a very balanced view from an environmental, social and governments perspective on a company
requires a lot of data, a lot of analysis. So we're engaging not only with companies but also
with NGOs, with governments to get that data. So collaboration is absolutely very important.
I'm from the Australian Human Rights Commission and I'm just wondering, as an investor, where and how do you treat the line when investing companies become aware of the human rights issues?
Why do you draw a line? For us it's simple. We draw a line if they don't respect human rights, labor rights
based on what we call United Nations global combat standards. If they don't respect, if they are badly
scored on our employees and supplier criteria, we don't invest very simple. We're not allowed to invest actually.
Probably what's, it is changing obviously but what sets us a little bit apart of our philosophy is that our portfolio managers are not allowed to invest even if they're from purely financial perspective. We love a company or think it's a good company.
If we think that our major labor issues or supply chain issues, we're not allowed to invest. So that's where we draw the line.
I know from an investor perspective, in terms of integrating sustainability into the investment process, there's a lot of leeway that is allowed to portfolio managers and there's certainly a lot of greenwashing going on in our industry that we have to admit, unfortunately.
But from a kind of perspective, for us it's very clear actually, we have very specific evaluation framework on human rights and labor rights and if you have a breach, a severe breach, or multiple small breaches, or your policy, or your strategy
doesn't comply with what we think is the highest standard in terms of labor rights and human rights, we will not invest in a company.
And adding to that, obviously, and I agree with Manzan with Gershwin, traceability and transparency is important and transparency sometimes even for companies is very complex and very difficult because supply chain is very big and very long and things get changed in many ways.
But still we engage with companies, we require the data and if they're unwilling to provide the data, it won't be part of our final best in class universe. So we go that far actually, if it's important for us and they don't provide the data, it won't be part of our universe or investable universe.
Yeah, I mean from our perspective, a lot of the factors go into that investment decision making process, we don't have the sort of hard and fast rules as Gershwin described, but there's a lot of factors that go into that decision, if we have serious ESG concerns, whatever that might be, we might decide not to invest in that company.
If we already hold the company, it's a different story, then it comes down to the question, well, do you divest, of course, about, or do you think you can actually have a more impact by engaging with a company?
In my experience, I think if you hold a company and suddenly there is a major issue, I think you have leverage as an investor to engage with a company on that issue.
Yeah, it always depends on case by case, but if there is an issue where you think the company could improve that performance and actually solve some of these issues, I think we're better off engaging with that company, that's my perspective on it.
Thank you.
