Liontrust engagement and voting report 2021 - Flipbook - Page 12
Global Compact
Liontrust views compliance with the UN Global Compact as a minimum
standard for investee companies.
We hold seven companies deemed by MSCI to fail this standard
and 25 companies are on the watchlist. We initially assessed
MSCI’s controversy report to understand the rationale. We were
satisfied that some companies had adequately responded, or in our
view, various matters were closed but due to legal overhang, they
were still attributed to their former status by MSCI. We determined
that six of the companies had matters that had been concluded.
We contacted the companies to ask for their views on their status
and what steps they had taken since the controversies. This resulted
in seven meetings with companies and email exchanges with three
others. Unfortunately, some companies we repeatedly tried to
contact did not respond.
The purpose of these engagements was to understand, especially
when a matter was considered structural in nature, what companies
had done to address the issues that had led to the status-changing
controversies. We requested that fund managers provide rationales
to be held centrally, and which explained why companies had
been designated ‘fail’ or ‘watchlist’.
Throughout this process, we found some inaccuracies with the
MSCI controversy product and noted how challenging it was to
remove the flag once it had been assigned, even when the matter
had concluded. We engaged with MSCI to encourage greater
transparency towards companies regarding this product. Liontrust
also participated in MSCI’s consultation, after which it announced
changes to its controversy approach. While the impact of these
changes is unclear, we imagine it will lead to a significant reduction
in the number of companies we hold with this designation. We will
continue to monitor any new holdings that have a red flag relating
to the Global Compact or any new flags assigned to current
holdings and assess the materialities of the issues.
12 - Liontrust: Engagement and Voting Report 2021
Examples of engagements on the Global Compact
Bayer is held by the Liontrust Global Fixed Income team and was
deemed by MSCI to have failed the Global Compact with regards to
biodiversity and land use. We met with management to understand
its view on this ‘fail’ status. The status related to controversies at
Monsanto, which was acquired by Bayer in 2018, with regards
to environmental concerns over GMO crops and their impact on
biodiversity. Bayer took Liontrust through an extensive presentation
about the neonicotinoid impact on bee populations and the steps
it took to prevent insect decline. It explained the changes it had
implemented and acknowledged past cultural issues with Monsanto
(prior to Bayer acquiring it). It accepted past errors with the neonic
coating process and took responsibility to improve processes. The
company also provided greater background information on the
use and applications of the product and some scientific studies
relating to claims in the MSCI report from NGOs. The presentation
was helpful and provided comfort regarding the holding.
3M is held by the Global Equities team and has watchlist status
due to controversies regarding its impact on local communities.
We met the company and discussed the circumstances surrounding
the litigation concerning per- and polyfluoroalkyl substances (PFAS).
As per the MSCI controversy report, “3M Company continued to
face multiple lawsuits related to its sale and manufacture of PFAS
substances, which had allegedly contaminated groundwater
supplies across several states in the United States.” We were
comforted to hear that when 3M Identified problems with PFAS in
the early 2000s, it immediately removed them from its products and
made others aware of the health risk. It reinvented the chemistries to
make them safer because they are required in many products, such
as electronics. 3M has not manufactured either of the contentious
PFAS chemistries for many years. We also talked about general
litigation risk (given 3M’s 55,000+ products), other legal actions
it was facing (such as those relating to military ear plugs) and
how it tried to ensure its products were not only safe for use but
were not harmful more broadly. Overall, we concluded that 3M’s
commitments and disclosures pointed to a company that was very
committed to doing the right thing and this was reinforced by the
individuals in the meeting.