If we wind back the clock just a decade or so ago, very seldomly did sustainability have a place in advisor-client interactions. Fast forward to today, and the realization that ESG factors are material has become a driving force for clients prioritizing more than just financial considerations in their investment decisions.
Shouldering part of this “global responsibility” is a key component of our commitment to sustainability. In our efforts to put stewardship at the heart of our active ownership practices, our focus is not only centered around driving strong risk-adjusted return potential, but on making a positive impact on our environment and the world around us. But how exactly do we do this?
Promoting sustainability through concrete action
Weaving responsible investing practices into our operating activities involves actively engaging with stakeholders to mitigate ESG-related challenges and capitalize on ESG-related opportunities.
Case Study: Engaging on gender diversity without using proxy voting
As one of the founding members of the Board Diversity Hong Kong Initiative, we champion gender diversity on boards for better leadership and improved corporate governance. Ultimately, we believe diversity increases performance and competitiveness for both companies and their shareholders.
Bearing this in mind, we engaged with a Chinese consumer staples company on both gender diversity and environmental topics. The company had a large female customer base but no women on the board. It’s rare to see a consumer staples company with zero female representation among its directors since gender diversity of consumer-related boards is often the highest for all primary sectors.
Initially, we shared academic studies justifying the positive correlation between the board gender diversity ratio and financial returns. In addition, we highlighted the company’s lack of board gender diversity compared with other Chinese and global consumer peers and asked the company to add at least one female director to its all-male board. These findings were shared with other investors in the Board Diversity Hong Kong Initiative, and we encouraged them to raise the same issue with the company, a key issuer in the market due to its size, sector, and potential for impact.
We also leveraged pending regulatory requirements and contributed to the Hong Kong Exchanges and Clearing Limited (HKEX) consultation paper, which proposed to end single-gender boards with a three-year transition period. We explained how this would require companies to set targets and timelines for gender diversity at the board level and across the workforce, and this consultation was subsequently passed. We engaged with the company to reiterate the importance of increasing the number of female directors on its board, offering coordination with the 30% Club Hong Kong to help search for qualified candidates. The company later added its first female director to the board in 2022.
Case Study: Acquiring a forest in Maine for carbon sequestration
In 2021, on behalf of our Manulife general account, we acquired an 89,000-acre forest in the U.S. state of Maine. The property, named Blueback for the highly sought-after subspecies of Arctic char native to this region, is a contiguous block of timberlands with a diverse mix of naturally regenerated spruce fir and northern hardwood tree species. Blueback is managed for Manulife’s general account as a carbon-focused investment underpinning our net zero journey. The core of the investment thesis is centered on the timberlands being used primarily to store carbon and to generate high-quality, high-integrity carbon credits.
Manulife reserves the option to sell the carbon credits as offsets or use the carbon removals as insets (applying the carbon credits generated by forests owned by the company in order to offset our own emissions) to help meet net zero commitments. Additionally, the lands are subject to a working forest conservation easement and offer unique recreation opportunities given the scenic lakes, rivers, and ecological features of the region. A portion of the lands will also be used for sustainable stewardship practices as a working forest.
Looking ahead
Our planet is facing a myriad of challenges, and the time to address them is now. As long as the world continues on its current path, the risks of devastating losses from both a financial and non-financial standpoint will remain elevated. Forging a new sense of shared responsibility for managing systemic environmental and social risks as well as their related effects and causes, is therefore critical for humanity going forward.
From an investing standpoint, seeking to communicate the benefits of a sustainable investing focus for every investor’s portfolio should be on any advisor’s radar—especially in terms of potential resiliency to these systemic risks and the opportunities for potential long-term value creation. After all, governments, corporations, investors, and consumers all have the obligation to take collective action—in whichever way they can!
Contributor Disclaimer
The case studies shown here are for illustrative purposes only, do not represent all of the investments made, sold, or recommended for client accounts, and should not be considered an indication of the ESG integration, performance, or characteristics of any current or future Manulife Investment Management product or investment strategy.
Manulife Investment Management conducts hundreds of ESG engagements each year but does not engage on all issues or with all issuers in our portfolios. We also frequently conduct collaborative engagements in which we do not set the terms of engagement but lend our support in order to achieve a desired outcome. Where we own and operate physical assets, we seek to weave sustainability into our operational strategies and execution. The case studies shown are illustrative of different types of engagements across our in-house investment teams, asset classes and geographies in which we operate. While we conduct outcome-based engagements to enhance long term-financial value for our clients, we recognize that our engagements may not necessarily result in outcomes which are significant or quantifiable. In addition, we acknowledge that any observed outcomes may be attributable to factors and influences independent of our engagement activities. Our approach to ESG investing and incorporation of ESG principles into the investment process differs by investment strategy and investment team. It should not be assumed that an investment in the company discussed herein was or will be profitable. Actual investments will vary and there is no guarantee that a particular fund or client account will hold the investments or reflect the characteristics identified herein. Please see our ESG policies for details.
We consider that the integration of sustainability risks in the decision-making process is an important element in determining long-term performance outcomes and is an effective risk mitigation technique. Our approach to sustainability provides a flexible framework that supports implementation across different asset classes and investment teams. While we believe that sustainable investing will lead to better long-term investment outcomes, there is no guarantee that sustainable investing will ensure better returns in the longer term. In particular, by limiting the range of investable assets through the exclusionary framework, positive screening and thematic investment, we may forego the opportunity to invest in an investment which we otherwise believe likely to outperform over time.
Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments.
The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.
This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management or its affiliates. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.
Manulife, Manulife Investment Management, Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.
RIA Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.
Author
Alyson J. Slater
Head of Sustainable Investment Canada, Public Markets
Manulife Investment Management
