Kirshni Totaram is Global Head of Institutional Business.

Any review of 2020 is inevitably a review of the devastating global effect of the Covid-19 pandemic. It placed the importance of our role as long-term stewards of our clients’ capital front and centre. At its core, our stewardship responsibility requires us to focus on the long-term prospects of the companies in which we invest. We do so by considering the financial health and prospects of each company, as well as the impact that their actions have on stakeholders, the environment and broader society.

The Covid-19 crisis presented a unique challenge – while our focus remained on the long term, we needed to consider the shorter-term impact that hard economic stops would have on each of the businesses in our portfolios, and the extent to which companies had the financial resilience to survive through a period of extreme uncertainty. From a corporate perspective, survival through the crisis became the crucial measure of long-term sustainability.

The severity of the crisis required us to fully understand the implications for each of the companies in which we were invested. We performed a stock-by-stock impact analysis to ensure that we understood the risks to our clients’ portfolios and were appropriately positioned to deliver long-term value to clients, in line with our stewardship responsibility.

This included understanding the financial impact on each company and the measures that they could take to protect their balance sheets. We also considered how they treated their key stakeholders, such as employees, suppliers and customers, through the crisis. We believe that the Covid-19 crisis will, in time, become a study of how companies were forced to make difficult trade-off decisions when balancing the need for financial survival with their broader responsibilities, in the face of extreme uncertainty. Despite this shift in emphasis in 2020, we continued on our stewardship journey by increasing our depth of knowledge on key sustainability issues and expanding the range of issues that we tackled with investee companies.

This meant that, while our focus on driving good corporate governance remained a key pillar of our approach, we did not lose sight of the broader objectives of encouraging responsible environmental and social practices within our investee companies. This is reflected in the increased proportion of engagements of an environmental nature relative to prior years.

The rise and rise of sustainable investing

In a year that was so disrupted by lockdowns that changed the way in which we live and work, it was striking to note how the industry’s focus on stewardship, environmental, social and governance (ESG) factors, and sustainable investment accelerated at an even greater rate than in prior years. There were several contributing factors, such as a continuation of industry and regulatory efforts that preceded the pandemic. However, the pandemic itself created a heightened appreciation of the importance of sustainability.

In terms of the economic and societal impact, the crisis highlighted the role that companies could play in assisting their stakeholders through the crisis. At a more systemic level, the pandemic demonstrated the new risks and complexities that we face in such an interconnected world, with clear parallels to, for example, the global climate crisis. Covid-19 has therefore placed sustainability in even sharper focus.

In 2020 we saw signs that the industry is starting to move towards a common set of standards in its approaches to tackling sustainability-related matters. Some of the more material developments that took place include updates to stewardship codes and the increasing adoption and alignment of corporate disclosure standards. A lack of consistency in company-reported sustainability data is one of the most pressing challenges facing the industry.

Active ownership

We continued to employ active ownership techniques by engaging robustly with investee companies on material issues, and by enforcing our rights as shareholders through proxy voting at shareholder meetings. Engagement with companies and voting at shareholder meetings are both powerful tools that we consider to be an essential part of our active management offering.

Effective engagement drives responsible corporate behaviour, which, in turn, leads to greater sustainability and, ultimately, higher long-term returns for our clients. We believe that we can have a greater impact by investing in companies that have scope for improvement in their ESG practices and exercising our influence to bring about the necessary changes. As some of our case studies in the report show, our approach has been effective and has brought positive change to many of our investee companies.

To this end, in 2020 we held 256 material engagements with 121 companies on a range of ESG issues, with an increased focus on climate-related matters.

We also continued to vote in line with our proxy voting principles, and voted on 6 466 resolutions across 524 shareholder meetings in 2020. We firmly believe that active engagement that is conducted in an informed, responsible and robust manner, enables us to drive tangible, positive corporate change over the long term by improving sustainability and governance practices.

Active ownership is, therefore, a core part of our stewardship approach, which we apply consistently across the full range of investment products that we offer to our clients.


Driving standards for sustainability reporting in South Africa

Our ability to drive meaningful environmental change requires regular and informed engagement with the companies in our investment universe. We now expect companies to provide robust disclosures of climate risks and opportunities, so that we are able to assess how well positioned they are to manage those risks and the transition to a low-carbon economy.

Starting in the fourth quarter of 2020, we have sent letters to 89 listed South African companies to explain these issues and to urge them to adopt the Task Force on Climate-related Financial Disclosures (TCFD) recommendations as part of their reporting process. This will be a complex, multi-year initiative; however, we are encouraged with the response that we have received thus far.

We will follow through on this initiative in the coming years by urging corporates to commit to this disclosure standard and implement it properly. For companies that adopt the TCFD, we will engage with them to ensure that they have credible environmental targets and that they follow through on these targets with the correct actions and appropriate disclosure.

To align our business with the commitments we ask of our investee companies, we have formally included natural capital in our corporate value-creation activities. As the first step on this journey, we included the findings of our first operational carbon footprint analysis in our integrated report for 2020. We will continue to use the learnings from this exercise to improve our operational efficiencies to soften and offset our impact on the environment. We are working towards formally reporting in terms of the TCFD in the next 12 months.

Expanding our global sustainable offering

While we actively engage all our investee companies in order to drive positive change, we also recognise and respect that many investors do not wish, or are unable, to have exposure to certain types of companies.

In 2020, we launched the Coronation Sustainable Global Emerging Markets (GEM) Fund. This is an emerging markets equity fund that builds on our existing emerging markets capability, which has delivered significant alpha to long-term investors. The Sustainable GEM Fund is designed to meet investor demand for long-term outperformance from an actively managed portfolio of sustainable investments, using a more conservative risk budget than our existing GEM offering. This follows the 2019 launch of the Coronation Global Sustainable Equity Income Fund. Both funds exclude investments in certain companies or sectors, such as tobacco companies, companies that manufacture or distribute controversial weapons, and companies involved in the mining and extraction of thermal coal or the production of coal-based power and/or the extraction of oil from tar sands.

The Sustainable GEM and Global Sustainable Equity Income funds follow the same approach to stewardship and active engagement that we apply across our business, by actively encouraging responsible business practices by investee companies.

Governance matters

In 2020, governance matters continued to be a key focus area for our investment team, with over 60% of our investee company engagements linked to governance concerns. We continued to advocate for improvements in corporate governance across a range of issues, with board composition, executive remuneration and shareholder value being key topics of engagement. Executive remuneration was once again a focal governance concern, with one third of our governance-related engagements linked to remuneration. We focused on important issues such as enrichment versus compensation, alignment with shareholders, and whether remuneration structures are sufficiently long term in nature and set against appropriate key performance indicators. We continued our push for the inclusion of malus and clawback mechanisms in all remuneration structures and made further progress, with a number of companies either including or committing to include these provisions in their remuneration policies.

We also addressed a variety of stock-specific concerns about shareholder value, addressing issues that ranged from business strategy, capital structure and capital allocation through to corporate actions and regulatory matters.

Social considerations

The Covid-19 crisis highlighted, and in many ways exacerbated, some of the major social and political challenges facing the global community. Many of the issues that companies faced had a social dimension, given that the issues centred on protecting the health and welfare of individuals affected by the virus and the response. The sudden and brutal economic impact of lockdowns meant that many companies were forced into survival mode. These companies needed to balance their need to survive the crisis with the need to act in the interests of their stakeholders, such as their customers, employees and suppliers, to protect the long-term viability of their businesses. All of these decisions had very real and tangible impacts on the lives of the people that were affected by them.

We engaged extensively with our investee companies throughout the Covid-19 crisis to understand not only the financial implications that lockdown would have on their businesses, but also their operational response, including the implementation of workplace safety protocols and employee well-being initiatives.

Additional areas of focus during 2020 included engagements with companies on stock-specific issues relating to labour relations, health and safety standards, empowerment, and the management of community relations by mining companies.

Keeping you informed

As part of our stewardship commitment, we provide regular updates to clients on our wider stewardship activities, including our engagement and voting activities, and updates on ESG matters. We communicate the results of these activities in our client interactions, regular client reporting and through our annual stewardship report. We also work with our clients individually to ensure that we provide them with the information that they need to fulfil their stewardship objectives, as well as any regulatory reporting required.

As a Principles for Responsible Investment (PRI) signatory, we report publicly on our responsible investment activities each year. These Transparency Reports, together with the Assessment Reports, are accessible to signatories on the PRI Data portal. Our voting activities are disclosed and updated on a quarterly basis, in the stewardship section of the Coronation website, along with the Stewardship Report.

Collaborating with others

Institutional investors are now, more than ever, working collaboratively to effect positive change at investee companies. Last year, we collaborated with like-minded investors on specific company issues across the various geographies in which we invest. These collaborations covered a range of issues, including board independence, capital management, corporate activity and environmental reporting.

We continued to engage proactively with industry bodies and policymakers to ensure that we help develop an environment that improves outcomes and protects the long-term savings industry. In 2020, a significant proportion of our collaborative efforts focused on working with industry bodies to assist with understanding the impact of lockdowns on the South African economy, and to advocate for appropriate policy measures and responses.

Signatories to multiple codes

Coronation remains a signatory to multiple responsible investing codes, including the PRI and the Code for Responsible Investing in South Africa. In addition, we adhere to the principles denoted in the updated UK Stewardship Code. As a signatory to these codes, we work very hard to ensure that we continue to take cognisance of and champion their tenets and principles.

Top of the class – Principles for Responsible Investment 2020

Our annual participation in the PRI’s annual reporting and assessment review is an important benchmark that enables us to assess how we compare to global best practice, and to identify areas where we can improve our process. In 2020, we achieved the highest PRI rating of A+ across all assessment categories, exceeding the median participant score across every category. We have worked hard over the years to develop and improve our stewardship practices and are encouraged to receive recognition for the progress we have made.

The road ahead

There can be no doubt that stewardship and sustainable investment practices are now mainstream requirements for the investment industry across the globe. It is no longer sufficient for investment managers to consider the two dimensions of risk and return; instead, investment managers must consider the impact that companies have on their external environment and factor this into their investment decision-making and engagement processes.

At Coronation, we believe that these objectives are not mutually exclusive; instead, we view responsible corporate behaviour as entirely consistent with long-term corporate success. We also believe that our approach to active engagement with investee companies is the most effective way to drive meaningful, positive, long-term change within the corporate sector.

However, we are not naive about the challenges that the industry is facing, and will continue to face, in tackling this incredibly complex and constantly evolving space. We believe that alignment with a set of credible disclosure standards remains a critical area that the industry must get right in the coming years. We further note that the flood of new ESG investment products into the market highlights the need for effective product disclosure standards, such as the EU’s Sustainable Finance Disclosure Regulation, to address the risk of potential ‘greenwashing.

As we have done for many years, we continue to review, interrogate and enhance our skills, understanding and processes so that we can fulfil our obligations as responsible stewards of our clients’ capital to the fullest extent. We believe that this will be integral to achieving our goal of delivering significant and sustainable long-term benefits to our clients, to our stakeholders and to the communities in which we operate.+

Kirshni Totaram is Global Head of Institutional Business.

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