MIRABAUD ASSET MANAGEMENT STEWARDSHIP REPORT 2021
Contents
Foreword 7
About Mirabaud Asset Management 8 Strategy and purpose 8 Client and Beneficiary Needs 9
Our approach to Sustainable and Responsible Investing 12 Governance structure and resources 14 Our approach to ESG investing 15 Climate change 16 Use of service and data providers 17 Training 18
Active Ownership 20 Engagement 20 Key ESG themes and engagement case studies 23 Voting 28 Escalating stewardship activities to influence issuers 35 Managing conflicts of interest 36
Risk management 38
Process assurance and review 39
Index 40
5
Foreword
Since its foundation in 1819, Mirabaud We strive to continually innovate and Group has consistently pursued a build on our stewardship framework philosophy of sustainability, based on a to be flexible, yet robust; to meet the long-term approach in serving the best different styles of investing across our high interests of clients and beneficiaries in conviction investment teams; and above a responsible way. Today, Mirabaud’s all, retain a significant importance on good broader sense of responsibility and governance and long-term sustainable sustainability is reflected in our interactions investing. with clients, employees and with the wider society. Corporate Social Responsibility is at This report covers how Mirabaud Asset the heart of the Group’s responsible focus to Management Ltd, Mirabaud Asset promote a more sustainable economy and Management (Switzerland) Ltd, confirm our commitment to the Sustainable Mirabaud Asset Management (France) SAS, Development Goals. Mirabaud Asset Management (Europe) SA and Mirabaud Asset Management These principles have provided a strong (España) S.G.I.I.C., S.A.U., as entities footing for Mirabaud Asset Management, comprising Mirabaud Asset Management the asset management arm of the Mirabaud (hereinafter referred to as “Mirabaud Asset group, in pursuing our long-term vision of Management”) apply stewardship principles incorporating responsible and sustainable to ensure the responsible allocation, considerations into investment decision management and oversight of capital making. It promotes stronger business thereby creating long-term value for clients practices within the companies in which we and beneficiaries leading to sustainable invest and creates the framework to better benefits for the economy, the environment understand non-financial risks. and society.
Active stewardship is a key pillar in our This report addresses Mirabaud Asset investment approach and drives us to engage Management’s response to the 12 with our investments across sustainable, Principles of the UK Stewardship Code strategic and financial considerations to 2020 (the “Code”) as well as to the EU meet the challenges of tomorrow. We Shareholder Rights Directive II (EU Directive always consider Environmental, Social 2017/828, “SRD II”) annual report on and Governance (ESG) factors alongside engagement transparency. traditional financial measurements, integrating this into how we exercise our voting rights. ESG integration is tightly woven into our investment decision making, where portfolio management teams work in close partnership with our dedicated Responsible Investment Lionel Aeschlimann Nicolas Mirabaud Yves Mirabaud team for strongCamille sustainable Vial governance. LionelManaging Aeschlimann Partner Thiago Frazao Etienne d’Arenberg Alain Baron
7 About Mirabaud Asset Management
Our firm strategy talent can make a difference. We focus and purpose on giving our investment professionals the culture and environment they need to express their talent, convictions and long- For the last 200 years, Mirabaud term views. Group’s philosophy has been driven by sustainability and responsibility, always Responsibility: For 200 years, our business with a long-term vision. Remaining true has been transferred from generation to to the spirit of our founders, we have generation, stronger and relevant to its time. successfully combined growth with a focus Today, this broader sense of responsibility on long-term continuity that has ensured our and sustainability expresses itself in our enduring independence. relationships with clients, our staff, our investments and towards society in general. Sustainability and long-term thinking are in our DNA and are underpinned by the Passion: At Mirabaud, passion brings following values and commitments that we motivation and dedication together to have upheld for the last 200 years: enable servicing excellence. This passion extends to our interaction with clients, as Independence, conviction, responsibility well as the way we face challenges on their and Passion. behalf.
Independence: As a family owned As a group, Mirabaud has always business with 200 years of history, we recognised the value of combining growth maintain a long-term perspective in all our with sustainability. A partnership-based activities. We have always been focused business structure means flexibility to take on managing assets for our clients. a longer term view, without engaging in Conviction: Our conviction is that human proprietary trading or pursuing speculative
8 positions. Core values also reflect a prudent We define Sustainable and Responsible approach to the way the group meets the investment (SRI) as a strategy and practice current and evolving needs of its global to incorporate Environmental, Social and institutional and wholesale clients, focusing Governance (ESG) factors in investment on responsibly generating the best risk- decisions and stewardship. We consider adjusted returns. ESG issues as important factors in valuing and selecting investments. This is why we Mirabaud’s Corporate Social Responsibility explicitly consider ESG factors alongside (CSR) policy reflects an aspiration and traditional financial measurements to passion in responding to potential provide a comprehensive view of an challenges and new opportunities, investment and help identify those that have while meeting stakeholder expectations. the potential to deliver sustainable returns. Furthermore, by strengthening CSR practices, Mirabaud seeks to leverage its role as a responsible organisation to promote a more sustainable economy and Client and confirm its commitment to achieve the United Beneficiary Needs Nations’ 17 Sustainable Development Goals (SDGs), whether directly or indirectly. Stewardship and broader ESG integration Mirabaud Asset Management focuses on is an essential component of our investment investments where we have the conviction process and hence forms an integral that long-term active management can part of our ongoing communications with generate the added value that our existing and prospective clients. Ongoing clients expect. As active specialists, we communication includes review meetings concentrate on high conviction investing, and fund reporting. Ad hoc client requests with a focus on sustainable outcomes. are fulfilled as they arise, always ensuring to
9 provide detail and clarification in relation to website the European SRI Transparency the ESG process and stewardship activities Code reports for the relevant funds, of our funds and segregated investment which clarifies each fund’s approach in a mandates. Given the industry’s growing comparable format. focus on stewardship and ESG activities, clients are increasingly requesting detailed Proxy Voting data for the funds is published information of our engagements and on Mirabaud Asset Management’s website. associated follow up and monitoring of It is updated on a daily basis and can be investee companies. These discussions and accessed here. The webpage provides a communications are addressed accordingly breakdown of votes per region, sector and on a case-by-case basis with input from the per fund. Given the majority of our funds investment management teams and the SRI are pooled funds, the voting is undertaken team. as per the firm’s policy.
In addition to the ongoing communications, For segregated mandates, where clients we communicate to clients and investors specify custom investment guidelines such via the information publicly available on as a bespoke exclusion list, we meet the the website. Information about the ESG investment guidelines that have been set by process for the funds is available on the the client. website at the following link: https:// www.mirabaud-am.com/en/responsibly- As at 31st December 2020, Mirabaud sustainable detailing how ESG is integrated Asset Management managed CHF 7.6bn within the Mirabaud Asset Management of assets on behalf of institutional and investment process. We have published wholesale clients. Details of our Assets the firm’s Engagement policy and Exclusion under Management are on the right hand policy on the website, and a dedicated side. CSR webpage where we communicate both the firm’s Corporate Responsibility Strategy to better inform clients and investors on our responsibility framework. Mirabaud Asset Management has also published on the
10 7% AUM by Asset Class
16% 37% Private Assets Alternatives Balanced 15% Fixed Income Equity 26%
5% 7% AUM by Markets
US Emerging 29% 59% Europe Global
Wholesale 38% Institutional
62%
Source: Mirabaud Asset Management, as at 31st December 2020.
11 Our approach to Sustainable and Responsible Investing
As an active investment manager, The work of our investment and SRI teams Mirabaud Asset Management seeks is to identify and invest in the outperformers to deliver investment outperformance and realise further potential through over the medium to longer term without engagement and corporate dialogue exposing clients to uncompensated regarding international standards and ESG risk. We believe that responsible best practices. investing is essential when it comes to delivering that value for our clients and Mirabaud Asset Management’s SRI strategy stewardship is an important factor, which is based on the following complementary underpins this objective. For us, the pillars: integration of ESG factors is a necessary complement to our active investing, - Exclusion: We exclude companies from high conviction investment approach. our investment universe which are involved In fact, this interweaving of financial in activities deemed “controversial” by and extra-financial criteria is valuable international conventions, accords and because it enables us to identify and certain national laws, or which pose a risk back companies with strong underlying to health or the environment, and which fundamentals and sustainable business cannot be addressed through engagement. models. We believe that the inclusion of responsibility and sustainability - Active ownership: This approach considerations can help promote translates into initiating and maintaining a sustainable business practices and can formal dialogue with companies, as well be instrumental in reducing investment risk as voting on ESG topics. Active Ownership and enhancing risk-adjusted returns for our can be achieved through proxy voting and clients. Investing in companies that have engagement activities. responsible businesses is beneficial for the long term, with consequences that are - ESG integration: ESG analysis is integrated good for business, good for shareholders, into investment processes from the early and good for society in general. stages through to portfolio construction, using
12 quantitative and qualitative research across and opportunities with companies. most of our assets. Leveraging our detailed ESG integration framework, through engagement activities, - Climate change: Aside from highlighting we are able to help companies understand low-carbon businesses, the climate change our expectations as shareholders and approach also seeks to drive intensive bondholders, and influence them to carbon issuers to reduce emissions, rather adopt good ESG practices. Sustainable than excluding them. business practices can give companies a competitive edge and increased chances Stewardship is therefore a fundamental to be successful over the long run, part of Mirabaud Asset Management’s ultimately improving the risk-return profile of investment and SRI approach. It is an their securities. opportunity for us to open-up a dialogue with issuers and companies on issues that To reflect our continuous commitment impact the long-term value of a business, to responsible investment, our 2020 including CSR policy, strategy, capital assessment in the UN Principles for structure, remuneration policy, corporate Responsible Investment (PRI) overall governance and ESG factors. Our and across all modules was an A+. engagement efforts take us, as investors, Our approach to integrating corporate a step further in our responsible investing governance and stewardship across our approach, to discuss sustainability risks asset classes was also awarded an A+.
Mirabaud UN PRI ratings 2020 2020
Mirabaud Peer Median
Strategy & Governance A+ A
Direct & Active Ownership Modules
Listed Equity - Equity Incorporation A+ A Listed Equity - Active Ownership A+ B Fixed Income - Corporate Financial A+ B Fixed Income - Corporate Non-Financial A+ B Private Equity A+ B
13 Governance structure strategy, we are committed to combining and resources adherence to CSR principles with growth, performance and development.
The Management Committees of Mirabaud Dedicated SRI Resources Asset Management strengthen internal A team of Sustainable and Responsible communication and dissemination of Investment specialists is dedicated to internal information on stewardship. The Committee research and is in charge of strengthening meets periodically and it is where issues Mirabaud Asset Management’s SRI strategy. relating to UK Stewardship are escalated. When it comes to the implementation Management is also responsible for and execution of our SRI approaches in reviewing Mirabaud Asset Management’s our various activities, the SRI specialists policies on stewardship and engagement, works hand in hand with our investment ensuring adherence to the stewardship teams. The aim of the collaboration is obligations and for evidencing Mirabaud twofold; ensure that the implementation Asset Management’s commitment to of our SRI approaches perfectly fit the corporate governance at a local level and needs and specificities of our products and within the wider sphere of influence of services, and guarantee full ownership and both Mirabaud Asset Management and adherence of our investment professionals to Mirabaud Group’s commitments. our SRI approaches.
Dedicated CSR Committee In addition to the SRI team, the global The Mirabaud group CSR committee equities team have a dedicated ESG analyst is comprised of members of executive supporting the day-to-day ESG integration management and representatives of and stewardship activities. the primary support departments. The Committee develops and implements a social Dedicated Risk Controls responsibility strategy within the company to In order to ensure compliance with our firm- ensure that the Group’s values and mission level policies as well as with fund-specific SRI are respected in all of its activities. All the policies, our Risk Management department committee’s thoughts and considerations are performs pre- and post-trade monitoring on a guided primarily by economic, environmental daily basis. Stocks to be excluded are hard and social aspects. The CSR Committee coded in our portfolio management system is therefore responsible for group-wide SRI to prevent any breach. The risk department practices and policies, which are evaluated monitors SRI fund alerts and that any regularly (at least annually) and adapted divergence is monitored and reported. when necessary. As a responsible company with a long-term focus, we constantly In addition, the Risk department carries undertake all such actions that enable us out a periodic review of funds’ SRI to meet the changing needs of our clients management procedures and ESG analysis and stakeholders. Under our sustainability methodologies applied.
14 Remuneration policy Our approach Mirabaud Asset Management entities to ESG investing have implemented remuneration policies proportionate to the size, nature and complexity of the specific entity and One of Mirabaud Asset Management’s updated these policies by incorporating principal focus is the sustainability of ESG factors in 2021. Mirabaud Asset underlying investee companies, as this is Management entities apply a remuneration the foundation for the success of our clients’ policy for identified staff based on relevant investments. principles imposed by the applicable regulation where the variable component of At Mirabaud Asset Management, we are remuneration is based on the achievement passionate about the way we implement of individual targets and in some instances, environmental and social responsibilities collective targets. Targets and obligations in our investment decision-making and include, amongst other elements, the stewardship activities. Our comprehensive appropriate integration and mitigation of SRI approach enables our portfolio sustainability risk as part of Mirabaud Asset managers and investment teams to identify Management’s activities. and invest in the strategic and economic assets best placed to meet the challenges of tomorrow.
Proactively addressing ESG risks and opportunities provides an additional boost Hamid Amoura in creating long-term sustainable value for Head of Sustainable our clients. Mirabaud Asset Management and Responsible Investment. implements a coordinated SRI approach across our entire product range. We believe the innovation of our approach resides in the pragmatism and conviction we apply to it. We apply product specific processes in Sara Bourhime conformance with their asset class, scope, Sustainable and Responsible objective and investment thesis and we adapt Investment Analyst our SRI approaches to meet the evolving needs of our clients and stakeholders.
When integrating ESG into our investment process, we combine both top-down and Kenza Himmi bottom-up analysis to enhance our stock Sustainable and Responsible picking strategies and risk adjusted returns. Investment Analyst Top-down screens allow us to optimise the investment universe by setting a minimum
15 ESG score threshold. Secondly, as active, Climate change engaged managers, we also believe that there is no substitute for in-depth, bottom-up company research and ongoing We believe climate change will have engagement with companies. Mirabaud material long-term financial impacts on Asset Management adopted a pro-active companies and investments. Political, stance to engagement and constructive regulatory and technological responses to dialogue with companies’ management climate change have the potential to affect either directly or through collaborative investment performance. We recognise our initiatives. Fund managers evaluate issuers’ responsibility as investors to understand and and companies’ ESG characteristics manage climate change related risk, and to alongside company fundamentals and in seek ways of harnessing the unprecedented some cases, may alter their valuation or investment opportunities emerging from a forecast scenarios to capture potential decarbonising economy. ESG risks. We acknowledge that not all ESG issues are equally relevant to all Climate change considerations are part companies, and the materiality of these of our bottom-up investment analysis. We issues varies significantly depending on measure the carbon intensity of our portfolios factors such as sector, geography, type of and investments to stay aware of the carbon investment, or time horizon. For this reason, intensity of our investments and identify we take a pragmatic bespoke approach, lower-carbon investment opportunities. We tailored to each team’s investment process. engage with carbon intensive companies, The SRI and investment teams share insights encourage best practice in managing carbon and research to inform investment decision- risks and physical risks in some of our funds. making. Internal research is supported by We also implement and report in line with external industry-renowned sources such the recommendations of the Task Force on as the Sustainability Accounting Standards Climate-related Financial Disclosures (TCFD) Board (SASB) materiality grid, company and increase transparency. By doing so, we CSR reports, annual reports and third party are able to encourage greater disclosure and research providers. transparency and understand better climate- risks in our investments. In 2020, the SRI team deployed an internal materiality matrix, drawing from We feel this approach represents only a third-party data providers’ expertise and snapshot of past emissions and we aim to internal research. This matrix is a tool complete it over the coming year. In fact, that provides investment teams with a we aim to increase the resilience of our comprehensive list of key material ESG investments and help the global transition to a issues specific to each sector or company, low carbon economy further through focusing which they can use to drive their analysis. on future climate-related risks. All of this provides a firm foundation to build a unique perspective on our portfolio We have adopted a number of key industry of investee companies and investments. partnerships at the core of our approach to
16 help drive our engagement efforts on transition means that working relationships with our and physical climate change risks. providers are based on trust from an early stage. We support and actively engage with companies through investor coalitions such We formally monitor the quality of our as CDP and Climate Action 100+. Through investment and ESG research and proxy these partnerships, we commit to engage voting services providers periodically actively with companies to get them to take through minuted calls or physical meetings. action to reduce greenhouse gas emissions, Moreover, we also maintain a continuous implement a strong governance framework, communication with our providers, by phone and report in a standardised manner. or email. A few examples of objectives we monitor providers against are:
Use of service • their ability to respond to our expectations and data providers and ad hoc requests, such as in-depth or additional analysis or technical difficulties; • their ability to provide the widest research We collaborate with a number of service coverage; providers to ensure we fully cover the • ease of integration of the research or data different asset classes and geographies into our internal systems and the ability of where we operate. Prior to working with the provider to assist us with it. a provider, we conduct appropriate due diligence on their services and coverage, To date, we have not ended a contract with to ensure their service and offering outputs any of our providers due to unsatisfactory match our expectations and needs. This research or services.
Extra-financial data providers
Name Asset class Geography
ESG Research & Analysis
Sustainalytics Equities & Fixed Income (corporate credit) Global coverage Inrate Equities Swiss All Caps Beyond Ratings Fixed income (sovereign bonds) Global coverage
Carbon and climate change data
Trucost Equities & Fixed Income (corporate credit) Global coverage CDP Equities & Fixed Income (corporate credit) Global coverage
Proxy voting advisor
Institutional Shareholder Services (ISS) Equities Global coverage
17 Use of data providers engagement efforts. We also rolled out a Mirabaud Asset Management’s weekly newsletter for employees globally, in-house Sustainable and Responsible where we communicate on responsible Investment team is dedicated to ESG investment trends, practices across the analysis and provides fund managers business and practical case studies of and analysts with expert research on engagements. This year, the SRI team also ESG considerations to integrate into their rolled out semi-monthly calls dedicated to investment processes. To complement updating client facing teams on the latest and support the work and expertise of this improvements in our ESG processes or team, we source engagement outcomes. industry-leading data providers, due to their wider coverage. By accessing ESG We also provide formal and ad-hoc research from third party providers, we are training on ESG and stewardship to able to hone in on large quantitative and our investment teams. Our SRI team has qualitative data sets. daily interactions with fund managers and analysts, where they discuss We believe it is important to utilise practical examples and case studies research from providers, in addition to of ESG integration and engagement of our internal research to enhance ESG sustainability matters. Whilst investment analysis in the investment processes. teams are responsible for company Quantitative data from providers helps us engagements, the SRI team leads on some hone our initial screens and exclusion lists. of these engagements to help pinpoint and We combine external ESG research with highlight to fund managers, which ESG internal research to inform our decisions issues or questions to prioritise. and often bring adjustments to the ratings (selection of material ESG issues, Over the coming year, the SRI specialists weighting of indicators) to reflect a fund will look to provide investment teams and manager’s vision of a stock or bond issuer. client service teams with more training sessions on ESG research and broader ESG integration. We will ensure to include Training regular updates on emerging and evolving ESG best practices, and regulatory We continue to invest time in training frameworks. Mirabaud Asset Management employees on the topics of governance and stewardship. Over the past year, we held a number of online training sessions for internal professionals and client service teams globally on the importance of
18 19 Active Ownership
Active ownership is one of our four pillars on valuable “face time” at meetings. For of responsible investment. Active ownership instance, they can utilise a dedicated encompasses all our engagement and engagement questionnaire, prepared in proxy voting activities. As stewards of our conjunction with the SRI dedicated team. clients’ assets, we aim to use our active The findings are then taken into account voice individually or with other investment within the ongoing assessment of a given managers, and enter into dialogue with company. companies on ESG matters. Our aim is to encourage behaviour change to protect Our engagement efforts take us, as and increase the value of our clients’ assets. investors, a step further in our responsible Such dialogue can also enhance our investing approach, to discuss sustainability understanding of a company’s sustainability, risks and opportunities with companies. which we feed back into investment Leveraging our detailed ESG integration processes. framework, through engagement activities, we are able to help companies understand our expectations as shareholders and Engagement influence them to adopt good ESG practices. Sustainable business practices can give companies a competitive edge Individual and direct engagements and increased chances to be successful Investment teams, in close collaboration over the long run, ultimately improving the with the SRI department and the Risk risk-return profile of their securities. Management team conduct ESG integration and stewardship activities. Our fund Through our engagement we seek to better managers are held accountable in the analyse the specific risks associated with context of the implementation of our our investments, including those related engagement policy. They have regular to ESG factors. This dialogue allows the company meetings and contacts each year teams to gain a deeper and more complete with company representatives on a variety understanding of the different businesses. of topics, such as company developments, We also use our engagements to address operating performance, leadership, material ESG issues and encourage reporting and disclosure, proxy proposals, the adoption of best practices amongst ESG issues or other matters that may present companies. a potential material risk to a company’s financial performance. Fund managers have Our engagement activities apply across all access to many resources, which can help our investment strategies. them prepare for company engagements While, in our fixed income activities, we and to maximise the engagement return do not enjoy voting rights in the way that
20 our shareholder counterparts do, we use considerations are key in reducing default our engagements and conversations with risks. As such, in our analysis, we identify management to enhance our views of sectors and companies where we feel there companies of companies we support with is most ESG risk and lack of transparency, our capital. We often have a direct line of and prioritise engagement and analysis on communication with management, which that basis. we use to encourage the adoption of good ESG practices within companies. Our SRI When possible, we also leverage our equity team collaborates with the investment team capabilities to increase our influence when and credit analysis, to enhance the research engaging with issuers. process. ESG issues are an integral part of our rigorous credit research and internal 2020 Engagement Highlights scoring. We act as long-term lenders and In 2020, we engaged directly with 199 stewards of our client money and so we companies in total, across our equity and fundamentally believe that sustainability fixed income portfolios.
Engagement by Markets
MENA 2% North America 6%
Pacific 2% LATAM 8%
Asia 4% Europe 78%
Sector breakdown
Communication services 2% Materials 10%
Healthcare 2% Information Technology 15%
Real Estate 2% Industrials 18%
Energy 3% Financials 19%
Consumer Staples 9% Consumer Discretionary 20%
21 Engagement Topics by industry
Real Estate Business Ethics Communication services Climate-Related Risks Corporate Governance Materials COVID-19 Industrials CSR Efforts & Disclosure Healthcare Data Privacy & Cyber Management Financials Environmental Resources Management Human Capital & Diversity Consumer Staples Low Carbon Transition Consumer Discretionary Occupational Health & Safety Information Technology Social Impact Energy Supply Chain 0% 20% 40% 60% 80% 100%
Engagement by ESG Topic
Occupational Health & Safety CSR Effort & Discolsure Environmental Resources Management Social Impact Supply Chain COVID-19 Business Ethics Corporate Governance Data Privacy & Cyber Security Climate-Related Risks Low Carbon Transition Human Capital & Diversity 0% 5% 10% 15% 20%
Engagement activities by objectives
Encourage ESG disclosure and transparency 24%
Support investment decision-marketing 26%
Better understand ESG 50%
Source: Mirabaud Asset Management, 2020
22 Key ESG themes Data Security and engagement Data security has become a critical risk for case studies many industries due to large and growing number of cyber- attacks and social engineering threats. These put customer Business ethics information and a company’s own data at Matters of business ethics are actively risk. When engaging on Data Privacy and considered prior to an initial investment Security issues, we aim to assess whether and are monitored on a regular basis. As the company has an adequate approach investors, we expect companies to operate to identify and address data security whilst being conscious of business ethics risks and whether specific cybersecurity and broader responsibilities to stakeholders risk management standards have been and communities. implemented or are in use.
By doing so, they are more likely to prosper • We approached a global leader in in the long-term, not least as a failure to prepaid corporate benefits regarding deliver on these ethical aims may lead to cybersecurity questions. This company stores a breakdown in relations with one or more and processes large amounts of sensitive key stakeholders. data and would be at risk of reputational damage and legal fines in the cases of The key indicators we look for include breaches. Through our conversations with avoidance of bribery, corruption and the company, we established that, despite fraudulent behaviour and involvement in previously suffering a minor, non-material anti-competitive practices and accountability cybersecurity incident, they had strong to external stakeholders. systems and policies in place, and a strong business continuity plan. We encouraged • We initiated engagement with a global the company to further strengthen its systems leader in prepaid corporate benefits, by seeking out an external certification regarding alleged anti-competitive (ISO 27001 standards) and to implement behaviour questions. The company regular employee and management training explained that they were appealing the on cybersecurity issues. We will follow decision and that the fines imposed on it up with the company to ensure effective and its peers were not financially material. implementation of stronger cybersecurity We also ensured that they improved their controls over coming months. compliance systems and controls to avoid similar incidents in the future. Given their • With a Chinese technology scale and the regulatory environment, we multinational, we discussed our concerns encouraged them to avoid the appearance with the company about data privacy of anti-competitive behaviour and take and the sharing of data with government active measures to mitigate the risk of authorities. Given the nature of the business, repetition. We will continue to monitor their they are vulnerable to cyber-attacks and involvement and activities. security controversies which could lead to
23 a loss in customer confidence and potential controversies around discrimination lawsuits fines. We wanted to ensure that the business and the lack of diversity programmes. Our invests sufficiently in security technology concerns on gender diversity throughout and that user information is treated in the organisation and especially at board compliance with relevant data privacy laws. level. The company does not disclose We received assurance that the business workforce diversity programmes. In 2019, is at the forefront of security technology. the company successfully appointed a We understand that data and tracking female director but there is understanding is only done with users’ explicit consent. that further action is needed. We Additionally, the company has no access encouraged the business to formulate an to users’ information. We emphasised the anti-discrimination and inclusion policy and importance of sound board accountability a workforce diversity programme, to include for data security and regular employee senior and mid-level employees. We will training and audits, which we will pursue in continue to monitor the company closely, subsequent engagements. as it is essential that the company and the board has the appropriate diversity of Human capital skills and perspective, to take the business A number of social factors can affect a forward. company’s financial performance, ranging from short to long-term challenges and • We contacted a Japanese staffing risks. We consider employee engagement, company regarding labour shortages in diversity, talent retention as well as good Japan. Japan has a particularly low ratio labour relations as material issues for a of qualified IT engineers, with this shortfall number of sectors. Some industries, such in human resources accelerating in the as pharmaceuticals, are particularly reliant future. We suggested to the company that on skilled workers to develop products and a way of sustaining long-term growth could new commercialisation strategies. When be by increasing trainings, establishing engaging with companies, we assess, partnerships with universities and increasing amongst other indicators, the quality of their the number of foreign engineers they recruit. disclosure regarding employees’ diversity, The conversation was constructive and we retention rate and engagement. were pleased to see during the year that the company had started disclosing more on • We contacted a Chinese technology initiatives aimed at recruiting more diverse multinational to discuss our concerns on entry-level candidates. gender diversity. The company is under increasing scrutiny on diversity issues Climate change and low carbon transition regarding the underrepresentation of women Climate change creates uncertainty and minorities. We also discussed past and opportunity. We firmly believe that
24 managing its risks and transitioning to a and efficiency increase. In projects of which low carbon economy are fundamental to adverse effects on the environment had not delivering competitive long-term net returns. been anticipated initially, customers are given support to make improvements. The Alongside publicly supporting the TCFD, bank has more sustainability initiatives in the we seek to engage and work with investee pipeline for the coming years, which we will companies to support their transition monitor and report on. to a low-carbon economy in ways that create positive investment, commercial, In 2019, we noticed the need for a environmental and social outcomes. common engagement platform in our systems, where all investment teams could Over the coming years, we will continue our share their research and engagement notes active direct engagement with companies following meetings. We solved this gap in as well as our involvement in Climate Action 2020 by setting up an open notes facility 100+. Our focus will be high emission within our order management tool, which companies that are critical to the transition can be accessed by all investment teams to a low carbon economy. and encourage idea sharing.
• We approached one of the largest The case study set out below is an example banks in Turkey to understand their of engagement that was led by our UK approach to integrating ESG criteria Equities team, which was then also used to into their lending operations. Banks risk inform an investment decision by another significant reputational damage and investment team. regulatory fines by lending to controversial and damaging industries and projects (e.g.coal mines, controversial weapons manufacturers etc.). What we also look for is a commitment by the bank to finance Case Study – UK Soft sustainable projects. From our conversation drink producer with the bank, we were pleased to learn about the policies and standards they have We approached a leading UK producer of in place to evaluate their loans. They put in premium soft drinks/ mixers. Following our place a “Non-financing activities” list, which previous conversations with management, excludes certain industries from financing we believe the company is fundamentally for sustainability reasons. They also make a performing well, with high levels of conscious effort to prioritise credit allocation environmental and social awareness and to projects focused on renewable energy, good corporate behaviours. However, the waste recycling, carbon emission reduction company received a poor ESG rating by
25 data providers, due to lack of disclosure. Over the coming year, we will look to The company provided reassurance encourage wider uptake of the notes tool that they were working on improving but also roll out new features on the platform their reporting and we should expect to break down sustainability topics into significant improvement in disclosure for different themes (e.g., Climate change, the following reporting round. We also data privacy, human capital etc.). took that opportunity to begin a long-term engagement on climate risk and sustainable Collaborative engagements development. One of the main risks we As an active asset management group, identified was around their supply chain as far as possible, Mirabaud Asset and the sourcing of key ingredients in areas Management allocates appropriate exposed to climate risk and highly stressed time and resources to support initiatives ecosystems, which could also lead to aimed at encouraging best practices, reputational damage for the company. We mitigating investments risks and improving learnt about the company’s extensive efforts the regulatory and operational investment to ensure best practice in all areas and to environment. Thus, Mirabaud Asset promote sustainable development in the Management entities participate in regions. collaborative engagements with other asset owners, which it sees as furthering the aims We believe that this is an issue that requires and objectives of its entities investment further attention and will continue to engage beliefs and its Responsible Investment Policy. with the company. Such initiatives and partnerships include the UN Principles for Responsible Investment, the CDP or the Climate Action 100+. Over the coming years, we will further Mirabaud Asset Management directly participated in strengthen our collaborative partnerships engagement with 32 companies in total. We were and engagements by reaching out to lead signatory on engagement with nine companies a wider set of companies across both and co-signatory with 23. initiatives.
Breakdown of CDP engagements by markets 2020
North America 6% 16% Europe Emerging Markets Pacific 37%
41%
26 Climate Action 100+ CDP
Climate Action 100+ is a global CDP is a not-for-profit organisation collaborative investor engagement that works with investors, companies initiative, launched in 2017. Together and cities to manage environmental with over 500 other investors, we impacts through enhanced disclosure are putting pressure on over 160 of environmental data. Thea CDP high carbon emitters to reduce their reporting platform provides us GHGs emissions, influence disclosure with a large source of corporate and encourage positive behaviour in environmental data, reported in a relation to climate risk management comparable manner and fully aligned and energy transition strategies. with the TCFD recommendations. Good disclosure enables us to assess We act as a collaborating investor how well companies manage their with an American consumer products ESG risks, an in particular climate company and a Franco-Dutch airline change related risks. company. In 2020, we took part in CDP’s non- These collaborative engagements call disclosure campaign to put pressure on firms to commit to net-zero business on some of the companies with the strategies. Over the past three years, highest impact on the environment significant progress has already been across the world. In total, 108 made in line with investor expectations. investors representing US$12 trillion in Such progress includes the alignment assets have engaged with over 1,025 of greenhouse gas emissions with the companies on climate change, forests Paris Agreement goals achieving net- and water security disclosure. These zero emissions by 2050 or sooner), companies, based across 49 countries, formally supporting the Task Force represent USD$21 trillion in market for Climate-related Disclosure (TCFD) capitalisation and almost 5 billion Recommendations and implementing tCO2e in emissions. board-level accountability and oversight for climate-related risks.
27 Voting includes the registration of information and reporting to Mirabaud Asset Management Group, as well as to the Funds and Our proxy voting process their managers. In 2020, full access to Exercising our voting rights is an essential voting recommendations was enabled pillar of our active ownership strategy. We for the representatives of Mirabaud Asset use our voting rights to act in our clients’ Management Group entities for the Funds best interests, promote good corporate and their portfolio managers. governance practices and help drive change within a company. Our proxy voting The voting rights are, in principle, exercised policy and voting records are publically according to the recommendations of ISS. disclosed on our website at the following Particular focus is given to “meaningful” link: https://www.mirabaud-am.com/en/ events such as merger proposals, general-contents/proxy-voting/. liquidations, or spin-offs, which could have a notable effect on the organisation of the Delegation of the Exercise of Voting Rights company in question, its value or the rights Due to the volume and diversity of securities attached to the shares held. However, our held by the Funds, Mirabaud Asset investment teams retain full discretion over management has retained Institutional how to vote, in the best interests of clients. Shareholder Services Inc. (hereinafter We ensure that the proxy voting activities referred to as « ISS »), to provide assistance are consistent with our objective of ensuring in the exercise of voting rights. ISS is an the best long-term incentive for clients whilst independent and recognised company in considering any particular circumstances of the field of the global management of voting the company in question. In cases where rights and of topics and services linked to our clients may have a material impact on corporate governance. the vote, we may inform the company of our voting intentions or signal our intention ISS carries out analysis on the companies ahead of the vote. in which the Fund portfolios invest and makes voting suggestions while taking into account the approach defined by Mirabaud Asset Management with ISS. ISS thus brings operational support, which
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6% 16%
37%
41%
Our voting activities for 2020 In 2020, we voted all of our actively held stocks across our Equity funds. The chart below summarises Mirabaud Asset Management’s proxy voting activity in 2020.
Across 4,994 unique proposals available to vote, we voted 100% of the time. Votes cast were in line with management recommendations 88% of the time, with almost 12% contrary to management Voting Statistics 2020 recommendations.
For: 88.0 % (4’394) As a high conviction active investment Against/Withhold: 11.6 % (578) group, we invest in companies with a Abstain: 0.4 % (22) management we trust and demonstrate a long-term vision, which we believe matches ours. This means that in our proxy voting activities, we usually support management. However, there are times where we decide to oppose a management recommendation to ensure the company is acting in accordance with our policy and with local best practice. Our portfolio managers have full discretion over their decision when opposing a management recommendation, and they ensure their decision is supported with the full rationale. This can lead to constructive conversations with companies on corporate governance and sustainability matters.
We endeavour to publish our voting records and related rationales when we vote for or against management on our website. Below are a few examples illustrating why we have chosen to oppose management proposals.
30 Voted “Against” Voted “Against”
A management proposal on total The re-election of an independent Remuneration of Inside Directors and non-executive director for a Belgian electric Outside Directors of a South Korean equipment company. hospitality company. We do not think the director in question We considered the proposed remuneration can be considered independent, because limit to be high relative to that of the market his tenure as a board member exceeds 12 average and not completely justified. Our years. To qualify as independent directors rejection of this proposal would neither lead with regards to the definition under Belgian to a decrease in the remuneration limit nor company law, directors must not have prevent the company from compensating served on the board as a non-executive its directors. As such, a vote against this director for more than three consecutive resolution would serve to communicate our terms during a maximum period of 12 expectations for improved transparency on years. In this case, the non-executive the company’s compensation practices. director had already served on the board as a non-executive director for three We believe remuneration structures should consecutive terms amounting to a period of be designed to incentivise executives to 12 years in September 2020. Following promote long-term, sustainable performance the vote, the company announced that the of the company. The remuneration system director had resigned from the board. should be clear, easy to understand and transparent, with full disclosure of key We believe the board of directors should elements of the remuneration schemes. be an active, independent and competent body, which is collectively accountable for Executive remuneration should contain its decisions to the shareholders that have fixed and variable elements, and the latter appointed it. should be based on clear and challenging performance targets. Variable element Board members should be elected targets should be designed to support and individually and annually by the reflect the company’s strategic objectives shareholders and should comprise as well as long-term shareholders interest. individuals with relevant and diverse skills The performance criteria that are part of the and traits, knowledge of the company and remuneration policy should be measurable, experience in the sector and regions in relevant to the company and transparently which the company operates. disclosed.
31 Votes cast by Proposal Category The majority of votes cast on both management and shareholders’ proposals were director related.
Management
50 % 43.1 % Director Related 43.1% 40 % Routine/Business 30.6% 30.6% Compensation 13.6% 30 % Capitalisation 10.4% 50 % 20 % 43.1 % Reorganisation and Mergers 1.2% 13.6% 40 % 10.4% Antitakeover related 0.7% 10 % 30.6% Other 0.3% 30 % 1.2% 0.7% 0.3% 0.1% 0 % Social Proposal 0.1% 20 % 13.6% 10.4% 10 % 80 % 1.2% 0.7% 0.3% 0.1% 70 0% % 66.7% Shareholders 60 % 50 % 4080 % % 3070 % % 66.7% 2060 % % 15.6% 6.7% 6.7% Director Related 66.7% 1050 % % 2.2% 2.2% Routine/Business 15.6% 040 % % Health/Environment 30 % 6.7% 20 % 15.6% Other 6.7% 6.7% 6.7% Compensation 2.2% 10 % 2.2% 2.2% 0 % Corporate Governance 2.2%
32 Meetings by Sector
Energy 2% Healthcare 8% Energy 2% Healthcare 8%
Utilities 3% Consumer Discretionary 12% Utilities 3% Consumer Discretionary 12%
Real Estate 3% Information Technology 17% Real Estate 3% Information Technology 17%
Consumer Staples 4% Industrials 20% Consumer Staples 4% Industrials 20%
Communications 5% Financials 20% Communications 5% Financials 20%
Materials 6% Materials 6%
Because we invest in companies worldwide and offer global investment opportunities, our proxy voting reach extends across multiple economic regions. The following chart highlights proxy statistics by regions.
Meetings by Market
Other (incl. Germany, China, Other (incl. Germany, China, France 11.8% India, Brazil, etc.) 38.9% France 11.8% India, Brazil, etc.) 38.9% USA 5.9% United Kingdom 12.7% USA 5.9% United Kingdom 12.7%
Ireland 8.4% Switzerland 22.3% Ireland 8.4% Switzerland 22.3%
Source: Mirabaud Asset Management, 2020
33 Opposing ISS voting recommendations As previously mentioned, Mirabaud Asset Management’s voting rights are exercised following the receipt of recommendations by ISS. However, we retain full control, determine the possibility of manual intervention, and retain final responsibility for our proxy voting decisions.
When modifying voting instructions, the investment teams communicate their intention to the SRI, Risk and Operations team, alongside their rationale for opposing our proxy research provider’s default recommendation. This is discussed internally, and when approved, is communicated directly to ISS.
Below is an example of when we voted differently to ISS’ recommendation.
We voted for the re-election of two directors within a US Financial services company, as opposed to ISS’ recommendation to vote against the re-election. ISS’ concern related to the long tenure of the directors, which can undermine board independence. However, from the investment team’s continuous conversations with management, they were comfortable with and aware of the company’s comprehensive plan for refreshing and rotating the board, along with a clear and definite transition schedule. The team have decided that the company’s transition plan is adequate and in the best long-term interest of shareholders.
34 Escalating stewardship If necessary, a meeting with the Chairman activities to influence or a Senior Independent Director of the issuers investee company will be requested. Mirabaud Asset Management values its relationships with investee companies Investment teams have discretion over and the primary objective is to resolve escalation to investee companies with issues directly without the need for external input from the Head of Investments, dialogue. However, on rare occasions, if Chief Operations Officer and Head of issues remain unresolved, intervening jointly Compliance as necessary. with other institutions will be considered. This will be decided on a case-by-case Our experience in 2020 has been that basis and Mirabaud Asset Management our engagement and dialogue with will be guided by the relevant regulatory companies has resulted in satisfactory framework prevailing at the time together outcomes and has not required escalation. with input from the Mirabaud Asset Our engagements are often with investor Management Compliance Department and/ relations teams and executives. It is practical or other Mirabaud stakeholders subject and effective to consider escalation always to appropriate consideration and measures where there is a significant management of any internal conflicts of shareholding in terms of issued share interest. capital or a percentage of assets under management. However, engagement or Mirabaud Asset Management is aware escalation is not just restricted to significant that escalating engagement activity carries holdings. a degree of sensitivity and risk and that confidentiality is of the utmost importance. Initial discussions with a company should Therefore, Mirabaud Asset Management normally remain confidential as our priority does not ordinarily make public statements remains protecting shareholder value regarding specific concerns it may have and we favour an approach where we with investee companies. build effective relationships with company management. Should initial discussions Decisions concerning escalation of concerns fail to produce a mutually beneficial will be determined by the respective outcome for all parties; the aim will be to Mirabaud Asset Management Executive resolve matters in a considered manner by Committee of the entity concerned. extending the dialogue within the Company and its advisors.
35 Managing conflicts training programme including identification of interest of conflicts, reporting and management on an annual basis.
Mirabaud Asset Management is the By way of example, conflicts may arise investment management arm of the when clients or prospects are also investee Mirabaud Group. Further information on the companies. In these circumstances, Mirabaud Group governance is available at contentious issues are discussed with the following link: https://www.mirabaud. the relevant investment manager, and com/en/mirabaud-group/governance/. if appropriate, escalated to Executive The Group has strong controls to help Management to discuss and determine prevent and manage any conflicts of interest appropriate action. In addition, where that may arise. required, there will be close engagement with the investee company, including where Mirabaud Asset Management recognises the issue may relate to a voting matter. In the importance of managing potential this instance, Mirabaud Asset Management conflicts of interest on behalf of its clients will vote in what it believes to be the best when voting their shares and engaging with interests of the clients who hold shares in investee companies. To address the limited the company, recognising the Principle of instances in which a potential conflict “ Treating Customers Fairly “ (TCF). Where may arise, Mirabaud Asset Management required, Mirabaud Asset Management will implemented and maintains effective obtain prior approval from the client prior Conflicts of Interest Policies taking into to voting. As Mirabaud Asset Management account the nature, scale and complexity is privately held, no conflicts of interest may of the business. When such instances arise from being a subsidiary of a publicly arise, the conflict will be disclosed to traded entity. the Management and the appropriate steps taken to ensure Mirabaud Asset During the reporting period 2020, Management fulfils duties to act in the Mirabaud Asset Management has not client’s best interests. The policy helps identified any actual or potential conflicts Mirabaud Asset Management effectively in connection with its stewardship or manage conflicts. All Mirabaud Asset engagement activities. Management employees at the point of induction are requested to disclose conflicts and inter alia participate in a mandatory
36 37 Risk management
Mirabaud Asset Management has a reports are shared with all members of the dedicated risk management team in place investment teams as well as with Mirabaud whose main objective is to identify, monitor Asset Management’s senior management. and communicate on market, liquidity risk, credit risk, counterparty risk and operational Mirabaud Asset Management has established risk. The market risk analysis differentiates an Investment Management Risk Committee specifically between systemic and (IMRC) that meets on a monthly basis in order idiosyncratic risk. In assessing systemic risk, to discuss risk-related matters across the firm. both quantitative and qualitative measures In addition, the IMRC reviews the ESG status are taken into account including ESG of all the funds and segregated mandates. considerations. This committee includes the CEO, the COO, the Chief Risk Manager and the Head of The risk management framework is designed Legal and Compliance. to ensure all investment and business related risks are identified, monitored In 2020, the IMRC discussed the Covid-19 and managed. Risk Management is impact on funds and on the business in responsible for: general. On a portfolio level, it consists of identifying dislocations in the market and • Risk monitoring and reporting; tracking impact. During the reporting period • Investment compliance (monitoring of calendar year 2020, Covid-19 business the Regulatory, Prospectus and Client implication such as remote working, cyber defined investment restrictions); security are also debated at this level. • Supporting the investment management Mirabaud Asset Management has also teams by providing quantitative participated in industry-wide working analyses. groups dealing with various topics such as NAV suspension, large redemption and The team deploys proprietary and non- associated liquidity risks. proprietary statistical tools, which use market data provided by external vendors in All best market practices are then order to report on the different types of risks translated into appropriate Mirabaud Asset on a weekly and monthly basis. The risk Management policies.
38 Process assurance and review
Mirabaud Asset Management’s stewardship, SRI Transparency Codes has required a engagement, proxy voting and SRI activities review of internal processes and provide are subject to periodic internal and assurances to clients and potential investors. external monitoring by the group internal audit function and due to new regulation As previously mentioned, a firm wide project or external authorisations. Policies are was undertaken to review the investment updated periodically and reviewed by company engagement process and provide relevant departments and approved by a reporting structure for engagement and the Mirabaud Asset Management entity stewardship activities for the Investment Executive Committee or the entity Board Managers. MAM uses a central database where required. The Engagement Policy, where Investment Managers upload details Proxy Voting Policy and the SRI Policyare of engagement with the investee companies. reviewed as part of the firm’s wider efforts to These are then reviewed and monitored in effectively integrate ESG and Stewardship conjunction with the SRI team. This process into the investment process. Additionally, the was also incorporated for the Fixed Income Exclusion Policy was also introduced as a teams. group wide initiative. We may also receive client feedback Assurance of processes and the through periodic reporting and client effectiveness of our activities is undertaken meetings. During 2020, we received on an external basis where the firm seeks feedback that the current external SRI labels for funds. The funds and their sustainability scoring method was not sustainability investing process are subject considered to be rigorous enough. The to audit by an independent third party prior process was reviewed and subsequently to receiving the French SRI label. At present, an internal scoring methodology was three funds hold the French SRI label in introduced within MAM which allows MAM recognition of robust ESG processes. to be more critical and apply consistent There is periodic monitoring of these funds methodology and ratings. to maintain the label. In addition, the publication on our website for certain funds as part of the requirements for the European
39 Index
UK Stewardship Code Principles
Purpose and Governance Where to find it in this report
Principle 1: Signatories’ purpose, Our firm strategy and purpose, p6 investment beliefs, strategy and culture Client and beneficiary needs, p7 enable stewardship that creates long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.
Principle 2: Signatories’ governance, Governance structure and resource, p12 resources and incentives support stewardship.
Principle 3: Signatories manage conflicts Managing conflicts of interest, p34 of interest to put the best interests of clients and beneficiaries first.
Principle 4: Signatories identify and Risk Management, p36 respond to market-wide and systemic risks Climate change, p14 to promote a well-functioning financial system.
Principle 5: Signatories review their Process and assurance review, p37 policies, assure their processes and assess the effectiveness of their activities.
Investment Approach
Principle 6: Signatories take account Client and Beneficiary Needs, p7 of client and beneficiary needs and Process assurance and review, p37 communicate the activities and outcomes of their stewardship and investment to them.
40 Principle 7: Signatories systematically Our approach to sustainable and integrate stewardship and investment, responsible investing, p10-15 including material environmental, social and governance issues, and climate change, to fulfil their responsibilities
Principle 8: Signatories monitor and hold Use of service and data providers, p15 to account managers and/or service providers.
Engagement
Principle 9: Signatories engage with Active ownership p18-25 issuers to maintain or enhance the value of assets.
Principle 10: Signatories, where necessary, Collaborative engagements, p23-25 participate in collaborative engagement to influence issuers.
Principle 11: Signatories, where necessary, Escalating stewardship activities to escalate stewardship activities to influence influence issuers, p33 issuers.
Exercising rights and responsibilities
Principle 12: Signatories actively exercise Voting, p26 their rights and responsibilities.
SRD II annual reporting
Disclosure Where to find it in this report
Disclosure on how our engagement policy Engagement, p18 has been implemented Voting, p.26
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IMPORTANT INFORMATION
This document is for the exclusive use of the individual to whom it has been given and may not be either copied or transferred to third parties. In addition, this document is not intended for any person who is a citizen or resident of any jurisdiction where the publication, distribution or use of the information contained herein would be subject to any restrictions or limitations.
The contents of this document are provided for information purposes only and shall not be construed as an offer or a recommendation to subscribe for, retain, pursue or dispose of fund units, shares, investment products or strategies. Potential investors are recommended to seek professional financial, legal and tax advice prior to making an investment decision. The sources of the information contained in this document are deemed reliable. However, the accuracy or completeness of the information cannot be guaranteed, and some figures may only estimates. All investment involves risks. Past performance is not indicative or a guarantee of future returns, and investors may lose the amount of their original investment.
This document is issued by the following entities: in the UK: Mirabaud Asset Management Limited which is authorised and regulated by the Financial Conduct Authority under firm reference number 122140; in Switzerland: Mirabaud Asset Management (Suisse) SA, 29, boulevard Georges-Favon, 1204 Geneva, as Swiss representative. Swiss paying agent: Mirabaud & Cie SA, 29, boulevard Georges-Favon, 1204 Geneva. In France: Mirabaud Asset Management (France) SAS, 13, avenue Hoche, 75008 Paris. In Spain: Mirabaud Asset Management (España) S.G.I.I.C., S.A.U.., Calle Fortuny, 6 - 2ª Planta, 28010 Madrid.
43 FEBRUARY 2021