Active investment commentary & analysis

Good but not enough

We met with a large European corporation who boasted to us of their environmental credibility citing 3 KPI’s which form the basis of their ESG strategy. One of these KPI’s is to reduce plastic usage by 30% come 2021. To achieve this target they will make use of both recycled and biomass materials. The company is a heavy user of plastic bags and any reduction would be welcomed both from an environmental and financial perspective but we have questioned why the target is not more ambitious and pushed for a move toward the 100% level. This they claimed was too ambitious as the project is complex and technical with the company operating many different subsidiaries and in many different geographies. We find this reply surprising as previous discussions in the meeting had been devoted to how their group structure allows for operational efficiencies to be made as synergies can be extracted from the current group structure which can benefit from its economies of scale.

 It’s depressing how often logic and efficiencies are important tools for a company with regard to financial metrics but seem to fall by the wayside as far as ESG issues are concerned. But the company assure us that management are fully committed to their ESG targets. Interesting then that these targets are not included in their remuneration structure whereas there are clear financial targets for which senior management will be rewarded.

 Engagement on such matters remain an important part of our investment process as environmental, social and governance issues have the ability to strongly influence the operational development of a company and therefore the more ambitious and the more financially dependent senior management are on ESG targets then the more convinced we can become on our potential returns. In this instance we will continue to push for a 100% reduction in plastic usage as well as for a remuneration structure that encompasses any ESG commitments the company has made.