Engagement

We aim to use our influence as investors to encourage companies to adopt sustainable business practices that promote stable long-term growth and reduce material ESG risks over time.

Through engagement, we create an open dialogue with investee companies to deepen our understanding of ESG issues underpinning a company’s strategy or valuation. Through engagement, we aim to improve long term risk adjusted results by mitigating ESG risks that could alter the valuation, fundamentals or strategies of companies we invest in.

Our engagement activities include seeking positive change in corporate behavior, challenging corporate practices, requesting improved ESG disclosure, and monitoring and providing feedback on corporate ESG strategy.

We may also partner with other investors through collaborative engagements. Collaborative engagements enable Manulife Asset Management to partner with other investors and industry experts to increase our influence on ESG concerns and macro-economic and systemic issues. In 2017, we participated in 10 collaborative engagements, including three industry-wide engagements related to methane emissions, cybersecurity and climate risk.

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OUR GLOBAL ENGAGEMENT ACTIVITIES:

Companies Icon60COMPANIES
 
Collaborative Engagements Icon10COLLABORATIVE
ENGAGEMENTS

ENGAGEMENT BY REGION

Figure 1 – Engagement by Region

 

Figure 2 – Engagement by Industry

Our engagements spanned 14 countries, with a large majority (83%) of engagements occurring in Asia and North America.

Engagement by Industry Chart
Source: Manulife Asset Management, December 31, 2017.
  • North America 47%

  • Asia 36%

  • Australia & New Zealand 3%

  • Europe 14%

 

Our engagements covered nine industries with financials dominating engagements (35%), followed by the consumer discretionary sector (11%). These sectors comprise high weightings in prominent benchmarks and exhibit a higher occurrence of social and governance issues.

  • Financials 35%

  • Industrials 5%

  • Telecommunication Services 5%

  • Energy 7%

  • Materials 10%

  • Consumer Staples 7%

  • Information Technology 10%

  • Health Care 10%

  • Consumer Discretionary 11%

 

Figure 3.1 – Engagement by Theme – ESG Factor

 

Figure 3.2 – Engagement by Theme – Topic Focus

  • We engaged on over 140 ESG issues spread across the three broad areas of environmental, social, and corporate governance themes. We often engage with a company on more than one ESG factor in a given engagement interaction.

Engagement by Theme – ESG Factor Chart
  • Environmental 38%

  • Social 29%

  • Governance 33%

 
  • Our engagement activities covered 14 main themes.

  • Board structure, employee development and retention and executive compensation were the top three themes.

Engagement by Theme – Topic Focus Chart
  • Board Structure 23%

  • Employee Development 15%

  • Executive Compensation 10%

  • Cybersecurity 9%

  • Emissions 7%

  • Product Quality & Safety 7%

  • Supply Chain 6%

  • Land Use 5%

  • Water 3%

  • Energy Consumption 3%

  • Shareholder Rights 3%

  • Climate Change 3%

  • Pollution 2%

  • Corruption 2%

  • Other 2%

 

As articulated in our ESG policy, Manulife Asset Management believes that successful companies in the long term will exhibit strong governance practices. This belief is reflected in two of the top three themes being governance related. The other top theme was employee development: we firmly believe companies that focus on recruiting, training and retaining talent have a stronger likelihood of having a more sustainable business model over the long term versus peers.

Environmental Icon 

Case 1

The investment team met with a vertically integrated pork producer to discuss fundamental business issues and several ESG concerns including insufficient disclosure on carbon emissions. The company failed to provide clarity on the questions raised. The proprietary analysis and insights gained through the engagement revealed that the risk/reward profile of the company was not attractive and the company lacked transparency on its ESG disclosures; the investment team decided not to invest in this company.

Case 2

A metals & mining company had outstanding liabilities provisioned for legal claims associated with a collapsed tailings dam. We engaged with the company to better understand whether any actions had been taken to improve risk management and avoid future controversies; to determine if provisioning was adequate for ongoing civil and criminal legal actions; and to assess whether the company's communications with ESG research providers was timely and proactive.

Through engaging with the company, the investment team gained a clearer understanding of the risks associated with various types of tailing dams and the risk mitigation processes. The company’s actions in response to the controversy and greater government oversight in the aftermath has resulted in improved disclosures, and the ability to better benchmark the company against its peers.

The investment team felt confident in the actions that management team had taken and we executed our proxy vote in support with management.

 
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Case 3

A financial company was assessed with a poor rating by an external ESG research and data provider, likely related to poor ESG disclosures. The investment team met with company management seeking information on a range of ESG issues, including social issues like the utilization, incentivization, and retention of high quality talent. The company shared its strategy around diversity, inclusion and retention. The investment team was satisfied with the company’s response to this issue, and other ESG issues, and continues to hold this position.

 
Governance Icon 

Case 4

An auto manufacturer was identified as an outlier due to poor governance standards relative to global, domestic and industry peers. The investment team met with company management seeking information on the company’s approach to board independence, provisioning for potential product recalls, and industry emissions scandals. The company conveyed an unsatisfactory approach, creating doubt for the investment team about its regard for long-term minority shareholder interests. The company was placed on a watch list to reduce and ultimately eliminate the position.

 
ESG Integrated Icon 

Case 5

We engaged with a mid-size bank in 2016. The objective for the outreach in 2016 was to influence the bank to report on sustainability metrics relevant for its operations and apply governance best practices. We were pleased to see the bank release its first sustainability report in Q1 2017. In addition, some of the governance issues highlighted in 2016 have been improved or resolved. We continued to engage with this company throughout 2017 on a range of ESG issues, including cybersecurity, climate change and product safety.

 

* This report pertains to Manulife Asset Management's listed equity and fixed income engagement activities