engagement activity report - cloudinary
TRANSCRIPT
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CONTENTS
I. DPAM: ENGAGING AS A SUSTAINABLE INVESTOR 2
II. ENGAGING TO HAVE A POSITIVE IMPACT ON SOCIETY 4
1. ENGAGEMENT FOR IMPROVING THE NEGATIVE EXTERNALITIES OF FINANCED ISSUERS 4
1.1 Facts and results on controversies’ review 6
2. ENGAGEMENT FOR DEFENDING OUR VALUES AND CONVICTIONS 10
2.1 DPAM values in terms of corporate governance 10
2.2 DPAM values in terms of governance 11
2.3 DPAM values in terms of environment 12
2.4 DPAM values in terms of social and human rights 16
3. ENGAGEMENT FOR A BETTER UNDERSTANDING OF THE SUSTAINABLE PROFILE OF COMPANIES 19
III. DPAM’S ENGAGEMENT ACTIVITY INTO FIGURES 21
1. HOW DID WE ENGAGE IN 2021? 21
2. ON WHICH TOPICS DID WE ENGAGE IN 2021? 22
3. WHICH RESULTS DID WE OBTAIN IN 2021? 24
IV. KEY THEMES AND PRIORITIES FOR COMING YEARS 27
1. CLIMATE HAS BEEN AND WILL REMAIN DEFINITIVELY A TOP PRIORITY ON THE PUBLIC AGENDA’S. 27
2. SOCIAL – BACK TO THE FOREFRONT OF THE ESG SCENE 28
3. GOVERNANCE: THE SHIFT FROM SHAREHOLDER PRIMACY TO STAKEHOLDER CAPITALISM 29
V. BE FOCUSED FOR BIGGER IMPACT 30
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I. DPAM: ENGAGING AS A SUSTAINABLE INVESTOR
Within the financial eco-system, DPAM is a key intermediate and has therefore a role to play
as a Sustainable Actor, Investor and Partner.
Our purpose, as an active investment manager, is combining financial objectives with our pioneering role as
sustainable actor at the service of all our clients, stakeholders and society.
Our aim is to deliver robust investment performances and be best-in-class across our different expertise, aligned
with DPAM’s shared values and culture.
Guided by our purpose, DPAM has determined its priorities in terms of sustainability outcomes targets according
to major global goals, particularly the Paris Agreement and the resulting worldwide commitment to carbon
neutrality. Following the ambitious program regarding sustainable finances and in particular environment and
climate change worldwide on the political agenda, DPAM aims to finance a fair, inclusive and sustainable
transition to a low carbon economy. Engagement with companies and SSA’s, ultimately followed by tangible
progress of these actors, is at the heart of the approach to achieve this goal, through the whole value chain and
eco system and for a maximized net positive impact.
Next to the Paris Agreement and the challenge of global carbon neutrality, DPAM has always adopted a holistic
approach regarding sustainable investments and therefore looked at the social and governance dimensions as
well.
Human rights and in particular digital rights are in the heart of the priorities of DPAM, given the fast-paced
digitalization and the focus of certain of our products on technology enabled innovations. On the one hand, the
health crisis has brought the social issue, in particular the safety and health of employees, to the fore. On the
other hand, DPAM is increasingly investing internationally and in "disruptive" technologies and activities where
human challenges must be continually rethought.
On the question of governance, DPAM is convinced that by placing the question of ESG issues at the highest level,
i.e. on the board of directors, companies will be more and more responsible on this issue and the importance of
the company's mission - its "purpose" - will then take on its full meaning.
DPAM, through its investments and its operations, its choices and strategies, generates an impact. Our aim is to
make this impact as positive and enduring as possible.
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Through its Engagement policy, DPAM makes a distinction between:
◼ entering a dialogue to improve the quality of the fundamental research for better-informed investment
decisions and sustainable long-term performances and
◼ engaging formally with the issuers to contribute to a better society. This can be achieved by either:
◼ reducing the negative impact of its investments, or
◼ by defending values and convictions which are essential for the company and society.
These engagement types have a defined escalation process which demonstrates DPAM’s seriousness around
its commitments and purpose, and its aim to look beyond sole financial investment performances and act
as a true sustainable investor. The second section of the report provides more insights, incl. facts & figure,
on this type of engagement.
DPAM engages with companies, ESG rating providers and other stakeholders, within the framework of its
positioning (Active. Sustainable. Research.), through collaborative and individual engagements, by launching
new dedicated thematic strategies, by disseminating information and sharing expertise and knowledge. These
initiatives aim at increasing the net positive impact our company strives to achieve.
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II. ENGAGING TO HAVE A POSITIVE IMPACT ON SOCIETY
1. ENGAGEMENT FOR IMPROVING THE NEGATIVE EXTERNALITIES OF FINANCED
ISSUERS
The “do not harm” principle has emerged from several regulatory frameworks about sustainable investments in
Europe and is a core concept of the latest EU Regulation on sustainable financial disclosure (so-called SFDR).
As a reminder, a Sustainable investment means an investment in an economic activity that contributes to an
environmental or social objective, provided that the investment does not significantly harm any environmental or
social objective and that the investee companies follow good governance practices.
Through this principle, the EU Regulation aims at three objectives:
◼ Ensuring minimum social safeguards in terms of human rights
◼ This means that issuers must conduct due diligence to avoid any negative impacts and comply with the
human and labour rights standards presented in the OECD guidelines, UN Guiding Principles on Business
and Human Rights, and Labour Rights conventions.
◼ Ensuring good sound governance principles
◼ Good governance practices include sound management structures, employee relations, remuneration
of staff and tax compliance
◼ Avoiding that some activities, which might be sustainable and contributing to environmental objectives such
as climate change mitigation and/or adaptation, are not deteriorating other environmental objectives such
as biodiversity or circular economy nor other social objectives.
Aligned with this principle, DPAM is committed to reviewing any severe controversy an invested issuer is exposed
to, and to engage with the issuer to improve its ESG profile.
The Responsible Investment Steering Group (RISG) is the “guardian” of DPAM’s mission to invest responsibly and
to align its investments with its commitments. Reviewing the severe controversies companies are exposed to,
enables DPAM to engage and/or divest to reduce its total negative impact. The RISG systematically reviews
companies exposed to severe controversies, sector by sector, to proactively defend sustainable and responsible
investments.
By reviewing the issuers facing severe controversies related to environmental, social or governance issues in
depth, DPAM is also able to monitor the most significant negative impacts of investment decisions on
sustainability factors relating to environmental, social and employee matters, respect for human rights, anti-
corruption and anti-bribery matters, to list the most important principal adverse impacts.
The sectoral review follows a strict process, guided by a standardized template and involvement of all investment
teams: portfolio managers, sectorial analysts, and responsible investments specialists. The whole process is
described in our controversial activities policy.
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Over the year, the following sectors were reviewed:
MONTHS NUMBER OF COMPANIES REVIEWED
COMPANIES FOR ENGAGEMENT
COMPANIES INELIGIBLE
Pharmaceuticals, Biotechnology & Life Sciences (=Healthcare excluding Health Care Equipment & Services)
January 2 1
Industrials (excluding Transportation)
February
5 0
Transportation (=Industrials excluding Capital Goods + Commercial & professional services)
0 0 .
Energy March
0 0
Utilities 2 0
Materials (excluding Chemicals)
1 0
Chemicals (= Materials excluding: Construction Materials; Containers & Packaging; Metals & Mining)
April 4 0 The four companies were kept on the exclusion list for the year.
Consumer staples May 3 1
Consumer discretionary (excluding Automobiles & Components)
June 2 0
Autos & components (= Consumers Discretionary excluding Consumer Durables & Apparel + Consumer Services + Retailing)
September 6 0
Information Technology October 7 1
Communication services 1 0
Financials November 17 0 2 were declared ineligible / excluded.
("Medtech") = Health Care Equipment & Services
December
1 1
Real Estate 0 0 -
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1.1 Facts and results on controversies’ review
During 2021, 51 companies have been analyzed as part of the ESG controversies reviews:
◼ 80% have been declared eligible following the ESG controversies reviews,
◼ 8% resulted in a formal engagement (i.e. letter),
◼ 12% resulted in exclusion.
Out of the companies we formally engaged with:
◼ 25% have been declared eligible,
◼ 0% have been excluded,
◼ 75% are still subject to ongoing engagement.
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In total, the initial reviews of ESG controversies and the Formal Engagement led to the following outcomes:
◼ 82% of eligible,
◼ 12% of exclusion,
◼ 6% pending decision.
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Case Study: Tyson Foods – disappointing engagement, dare to divest
Tyson Foods, the US food company specialised in industrial meat processing (chicken, pig, beef, etc.) has raised several social, environmental and governance concerns. During the controversy review at the April 2020 monthly meeting of the Responsible Investment Steering Group (RISG) several major controversies and material ESG issues were identified. The main concerns and issues were shared with the company through a formal engagement letter on 20 May 2020:
- Employee safety, health and security: Tyson Foods has several significant incidents relating to the health and safety of its employees. Ambitions are unclear and lack visibility in terms of timing. The COVID-19 health crisis has demonstrated how important these issues are and how they must be taken seriously, if not anticipated by the employer, to correct the past situation if necessary.
- Wages and equal treatment: we asked the company to explain an accusation of downward pressure on wages, in line with industry peers, as well as issues of unequal working conditions between different employee profiles.
- Environment: Tyson Foods has been implicated several times in severe water pollution issues, notably in the Gulf of Mexico. Several recent incidents do not reassure us about the lessons learned from the past and the prevention measures taken since then. We call for more visibility and concrete commitments on environmental policy, including the implementation of the same ambitions and commitments in their non-US sites such as China and India.
- Corporate governance: we also expressed our reservations about the presence of several members of the Tyson family on the Board of Directors and called for more guarantees to protect the rights of minority shareholders.
Following several reminders and requests for more detailed and elaborated answers, we ultimately decided to divest from the company in June 2021. We concluded that our engagement was not leading to anything conclusive. In addition, we received similar messages through collaborative engagement initiatives targeting the meat giant. As such, engagement on Labour Risks in the meat supply chain through FAIRR, the collaborative engagement initiative focusing on the protein industry, resulted in disappointing outcomes as limited response was provided by the company. With limited insights over our concerns on quality & safety issues, its environmental impact and business ethics we decided to divest since transparency is ultimately the (minimum) starting point for constructive engagement and positive impact creation.
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Case Study: Activision Blizzard – engaging with courage, seeking actions
A company which faces an increased controversy level is Activision Blizzard. In July 2021, the California Department of Fair Employment and Housing (CDFE) launched a lawsuit asserting that the management of Activision Blizzard allowed and at times encouraged sexual misconduct towards female employees, that the company maintained a "frat boy" culture, and that the company's hiring and employment practices were discriminatory against women. As a response, the company fired three senior developers included in the investigation as well as the head of HR and the president of the Board. It also took considerable steps to identify other people that might have been involved in the investigations, set clear-cut diversity targets and froze the pay of the CEO as long as these targets and action points were not reached. These actions were taken prior to DPAM being able to reach out to the company with the request to set up proper management practices and targets. Unfortunately, the saga did not end there… In November 2021 the CEO was named in older harassment cases and it has been shown that he purposefully fought to keep accused people in a position of power while hiding it from the board. Moreover, the new female president stepped down beginning of November due to discrimination issues and a disbelieve that the company would be able to create any material changes compared to previous years in terms of human capital and culture. A couple of employee walkouts also took place, even after Activision Blizzard's announcement of new targets and actions to get rid of the frat boy culture. At the end of November 2021, a group of investors even called for the ousting of the current CEO, as did the head of Playstation, a key stakeholder of the company! The SOC Investment Group, which works on behalf of US-based union pension funds and is invested in Activision Blizzard, wrote a public letter to demand ousting the CEO and certain board members. After having contact with this shareholder group and understanding the reasons for the demand, DPAM realised it also had to take swift action. Armed with the information, DPAM send out an official engagement letter to Activision Blizzard in December 2021 with the request for the CEO to step down as well as two board members, thus supporting the SOC Investment Group’s demands. We deemed this essential for the company to continue to function properly and to let the storm settle. The reception of the letter has been acknowledged and an answer is still expected in the coming weeks. Finally, the company has announced it has fired over 40 people since July 2021 due to the investigations around misconduct that the company started at the beginning of this controversy. Mid-January 2022, the company has been acquired by Microsoft in a much-mediatized deal. We expect the company culture to be altered as the company will need to report to Microsoft Gaming CEO Phil Spencer, although the current CEO of Activision Blizzard will keep his post until the acquisition is completed. The case will be assessed again during a following RISG meeting to understand how the employee scoring will improve and concrete company culture pain points will be tackled. The war for talent is vital in the game developing industry and heavy labor controversies can be a drag on business development, which is why we followed this case up close.
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2. ENGAGEMENT FOR DEFENDING OUR VALUES AND CONVICTIONS
The values and convictions are derived from major global goals, mainly the Paris Agreement and its resulting
global commitment to carbon neutrality as well as the 17 Sustainable Development Goals, which have become a
standard framework to assess and report on ESG impact.
2.1 DPAM values in terms of corporate governance
The Voting Policy, adopted since 2013, is articulated around four pillars, which reflect the corporate governance
principles that DPAM wishes listed companies to apply, namely: protection of shareholders (1), sound corporate
governance and composition of the board of directors (2), transparency and integrity of financial information (3)
and ESG responsibility (4).
Since 2014, DPAM has conducted engagement autonomously and directly by contacting organizations via letters
to company executives, for the purpose of increasing DPAM’s impact on investees’ corporate governance. By
doing so, DPAM does further than simply voting in general assemblies. This direct engagement effort
complements the proxy voting by explaining to investee companies’ management teams the rationale behind
DPAM’s votes. The topics of engagement have been defined within the Voting Advisory Board (transparency of
information, independence of the board of directors, anti-takeover defenses, multiple voting rights and
transparency of the executive function remuneration report). The objectives of the engagement have also been
clearly defined i.e. these letters have three major objectives. Firstly, they aim to inform companies about our
approach and make them aware of the principles that we defend. Secondly, they aim to show that applying
sound governance practices can reduce the risk of a company becoming dysfunctional and may improve its
performance. Finally, it is also an opportunity to highlight social, environmental and governance challenges as
well as the added value of sustainable development.
Please refer to the separate voting activity report 2021 for the results DPAM obtained as responsible
shareholder.
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2.2 DPAM values in terms of governance
Following best practices observed in Climate Action 100+ regarding engagement on climate and oversight by
Board of Directors but also a future sustainable corporate governance directive, DPAM is convinced that the
whole ESG factors should be put at the highest level of governance for a systematic and full integration.
Our aim in engaging with issuers is to encourage appropriate board composition and expertise to understand
ESG risks and opportunities and to involve middle management in ESG priorities.
Governance is broader than corporate governance. Several themes can be mentioned here as political lobbying,
business ethics, tax fairness/avoidance, bribery and corruption, etc. DPAM's staff is particularly sensitive to
ethical business issues, which is a core value for the company. It therefore follows naturally that these issues also
remain a priority in the engagements we conduct with the various issuers.
The engagement on Governance matters often takes place during specific engaged dialogues between DPAM’s
analysts and portfolio managers and companies. These specific engagements specifically target Sustainability
issues which have been identified as relevant and material following DPAM’s proprietary assessments (e.g.
scorecards, controversy assessments, etc.).
Case Study: ESG expertise on the Board of Directors
Beyond the issue of the diversity of profiles within the Board of Directors, the question of its expertise and
adequacy has been the subject of particular attention from shareholders and stakeholders for several
seasons.
The Exxon AGM in 2021 will set an example for the years to come on the issue of ESG expertise on the board
with the success of the Engine n°1 hedge fund which obtained the replacement of three board members
for better competence and expertise on the issue of climate and environment.
In continental Europe, companies must ensure that the board monitors environmental and social risks.
Proxy voter Glass Lewis has already announced that it will look at companies that do not communicate
sufficiently on these issues from next year on and, if there is no improvement, may vote against the board
chairman from 2022. To be continued.
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2.3 DPAM values in terms of environment
The Paris Agreement but also the worldwide commitment to carbon neutrality have reinforced our conviction to
increasingly focus on climate-related as risks and opportunities in our investment decision making process.
Following our support to TCFD recommendations and our active membership in Climate Action 100+ and CDP,
DPAM aims at increasing its ambitions and promote best practices on the topic.
Apart from investor actions targeting corporates, which is discussed further in this report, DPAM also took some
action at international level, targeting governments. As such, we signed the 2021 Global Investor Statement to
Governments on the Climate Crisis. This statement was launched in view of the coming COP 26 to call on all
governments to:
◼ Strengthen their NDC’s for 2030 before COP26, to align with limiting warming to 1.5° C and ensuring a
planned transition to net zero emissions by 2050 or sooner;
◼ Commit to a domestic mid-century, net-zero emissions target and outline a pathway with ambitious interim
targets including clear decarbonization roadmaps for each carbon intensive sector;
◼ Implement domestic policies to deliver these targets, incentivize private investments in zero-emissions
solutions and ensure ambitious pre-2030 action through: robust carbon pricing, the removal of fossil fuel
subsidies by set deadlines, the phase out of thermal coal-based electricity generation by set deadlines in line
with credible 1.5° C temperature pathways, the avoidance of new carbon-intensive infrastructure (e.g. no
new coal power plants) and the development of just transition plans for affected workers and communities;
◼ Ensure COVID-19 economic recovery plans support the transition to net-zero emissions and enhance
resilience. This includes facilitating investment in zero-emissions energy and transport infrastructure,
avoiding public investment in new carbon-intensive companies that receive government support to enact
climate change transition plans consistent with the Paris Agreement.
◼ Commit to implementing mandatory climate risk disclosure requirements aligned with the TCFD
recommendations, ensuring comprehensive disclosures that are consistent, comparable and decision-
useful.
The regulatory and policy landscape, next to technological evolutions and market changes, result in so-called
climate-related transition risks and opportunities. Hence, in line with our threefold commitment, we believe that
the climate-related challenges we are facing today need to be properly taken into account in our investment
decision making process, since they can pose significant risks to our investments and society at large.
Furthermore, as a sustainable and responsible investor aiming to defend certain values and convictions,
collaboration with other stakeholders, in particular shareholders, is crucial to create maximum positive impact.
Within the environmental pillar, our climate engagement approach focuses on individual engagement (i.e.
companies in the framework of our TCFD analysis, see TCFD Report) as well as collaborative engagement. On the
former, it is up to the discretion of the portfolio manager and analyst to assess the outcome of their dialogues
with the company and to what extent to company in question is sufficiently addressing climate-related risks or
seeking climate-related opportunities (i.e. engaging a dialogue to improve the quality of the fundamental
research). Although we do believe these dialogues have the capability of resulting in real economy impact, these
are not yet measured as such and no formal escalation procedure is applied. On the latter, DPAM joined several
engagement initiatives, including CA100+, CDP and FAIRR. More details on the aim, status and progress of these
initiatives can be found hereafter as well as in our 2021 TCFD Report.
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1. CPD: encouraging transparency and science-based target setting
As part of our broader climate commitment, DPAM is involved in several collaborative engagement initiatives,
such as CDP. As a reminder, CDP is a not-for-profit charity running the global disclosure system for investors,
companies, cities, states and regions to manage their environmental impacts. Throughout 2021, DPAM joined
two of its campaigns, namely the Annual Non-Disclosure Campaign (NDC) and the Science-based Targets Setting
Campaign. Via the former campaign, we urge corporates to disclosure environmental data to CDP, according to
their TCFD aligned reporting framework. The objective is threefold: enhancing our research capabilities (1),
providing information for the wider stakeholder community (2) and requiring corporates to measures and rethink
environmental implications (3). Like in 2020, DPAM achieved a proper result with a response rate 40% (compared
to 25% for the global result, note that this is the most successful campaign so far). One of the highlights of the
2021 NDC is the engagement with Lotus Bakeries. Since the company is based in Belgium, DPAM took the
initiative to lead this engagement. With support from other investors, we reached out to the company via a
formal letter highlighting the importance of environmental disclosures. This letter was well accepted by the
company although they reached out to discuss the request more in detail. Following a call with one of the
portfolio managers and a member of our Responsible Investment Competence Center (RICC), the company
agreed to submit its reply on both the climate and forests questionnaires, a clear win, although the Lotus Bakeries
choose to await scoring by CDP until next year to gain more maturity. DPAM will internally assess the replies and
reach out to the company to further discuss these.
Next to the NDC, DPAM also took part in the Science-based Targets Setting Campaign, which encourages
companies to set carbon emissions reduction targets in a scientifically backed manner, which are later on
validated by an external organization (the Science-based Targets Initiative). This campaign is still ongoing, but
first results already highlight over 40% of the target companies expressing interest in setting such a target.
2. CA100+: continuing our efforts
A quick recap to start with. CA100+ is the collaborative engagement initiative backed by the PRI which engages
with high emitting companies on improving climate change governance, cutting emissions and strengthening
climate-related financial disclosures. Over 615 investors joined the alliance so far, representing >$65 trillion in
assets under management. DPAM joined the initiative in 2019 and throughout this year, 2021, we continued our
efforts. In general, we participate in investor meetings, joined sessions on the development of the Net-Zero
Company Benchmark and engaged with several companies.
Back in 2020, our engagement with a German cement producer faced some difficulties. We were unable to reach
a formal agreement with the Company to make lobbying disclosures to assess alignment with its strategy and
clarify concerns. Although publicly committing to this in earlier communication, the company did not intend to
publish their lobbying review. As a result, the participating investors, including DPAM, decided to escalate the
engagement. Following some escalation steps (and threats), an important milestone was achieved as the
company finally committed and ultimately disclosed its lobbying activities/review and the alignment with its
positioning reflecting the goals set out in the Paris Agreement. Furthermore, the company made formal
commitments concerning aligning future investments with carbon reduction targets and accounting alignment.
Talks continued with other target companies and more info will be made available in our 2021 TCFD Report.
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3. FAIRR: targeting the protein industry
The collaborative initiative FAIRR aims to decrease the environmental impact of the food value chain by
encouraging the use of sustainable proteins within food products. Knowing the food industry is responsible for a
significant portion of total global GHG emissions, especially the food industry, DPAM decided to take action on
this front. As such, we joined the FAIRR initiative given its involvement in agro-food related companies.
Throughout 2021, DPAM took part in several engagement campaigns of FAIRR:
◼ Sustainable aquaculture engagement, targeting the world’s largest salmon companies and encouraging
them to develop a science-based approach to diversifying feed ingredient to better manage the associated
ESG risks, such as deforestation linked to soy production. Investment companies for which DPAM joined the
talks are Mowi, Bakkafrost and Grief Seafood and supported all other engagements. Realizing constructive
engagement requires time, will continue this engagement in 2022 when phase 2 starts.
◼ Sustainable protein engagement, aimed at global food companies to encourage and challenge them on the
transition of their product portfolios to facilitate healthier and more sustainable diets while ensuring long-
term food security. We supported all engagements and joined the dialogue with Kerry Plc. As with the
aquaculture engagement, realizing constructive engagement requires time, will continue this engagement
in 2022 when phase 6 starts. Note that 7 out of 25 target companies now have targets in place to increase
the volume and sales of meat and dairy alternatives and/or reduce brand-level emissions, while all
companies are investing in the development of plant-based products.
◼ Working conditions engagement, targets some of the world’s largest animal protein producers and
encouraging them to strengthen labor standards and corporate practices throughout their supply chain
(please also refer to the Tyson Foods case study). We joined the talks with Tyson Foods and Cranswick.
Although the dialogue with the latter was very constructive, the company is lagging its peers and significant
progress has to be made in the next phase of the engagement. As with the other engagements, realizing
constructive engagement requires time, will continue this engagement in 2022 when phase 2 starts.
Within our values & convictions linked to environmental issues, throughout the reporting year we also focused
on broader scope 3 emissions and its broader context. Especially the target setting commitment for companies
with significant scope 3 emissions, as well as actions on product development and supplier engagement were
addressed. More targeted engagement is expected to take off as of 2022, following DPAM’s increased ambition
on climate front.
As such, DPAM has analyzed the feasibility of joining the net zero emissions initiative. DPAM sees this objective
as ambitious and impacting objective, which deserves serious and firm commitment on the consequences and a
detailed path including milestones to ensure the result by 2050. Knowing engagement on corporate emissions
reduction target setting will be a key pillar of the commitment, we hope to provide more insights in our next
report.
A final word on positive environmental impact through investments. By launching a dedicated strategy to climate
change, DPAM has demonstrated its willingness to contribute to solutions to climate. This strategy has increasing
success and grew from € 162.34 mio AUM to almost € half billion today. Next to its responsibility to finance the
transition to a low carbon economy and therefore investing in the best practices in the transition sectors, DPAM
supports the innovative companies which offer solutions and alternatives to climate change (climate enablers)
and the innovative financial instruments such as the green bonds as well.
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Although not directly related to engagement, but with tangible impact, we should note that our active
sustainable strategies are compliant with the requirements of the Belgian “Towards Sustainability” fund label1,
which is considered as one of the most severe ones in terms of investment restrictions for the fossil fuel and
power generation industries. It should be noted that the label reviewed its investment criteria in 2021, ultimately
strengthening the environmentally-related requirements. DPAM therefore reviewed its Controversial Activities
Policy accordingly and reinforced its control on the labeled sustainable strategies.
1 Belgian Quality Standard and Label for sustainable and socially responsible financial products (https://www.towardssustainability.be/).
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2.4 DPAM values in terms of social and human rights
As an important investor in technologies and disruptive companies, we are convinced of our responsibility to
ensure this digital transition takes place with respect for human rights in the digital sphere. Technological
companies could contribute to the improvement of human rights but might also violate these in case insufficient
due diligence takes place. It is our responsibility to ensure that this our portfolio companies promote best
practices in this regard.
Responsible use of Facial Recognition – to promote human rights best practices in digitalisation
DPAM joined a collaborative initiative around the use of Facial Recognition Technology. This technology
is one of the new technologies which are continuously changing our daily lives and our vision of the
world. Part of the biometric recognition family of technologies, Facial Recognition Technology (FRT)
'identifies' or 'verifies' the identity of a person using a picture or video of their face. In contrast to
fingerprints, iris scans, voice recognition, or most other biometric systems, FRT does not require any
physical interaction by the end-user. FRT is easily accessible, automatic, seamless, and cost effective.
Governments, law enforcement agencies and corporates are rushing to adopt FRT in pursuit of increased
security and improved efficiency.
Nevertheless, in some instances, new technologies such as FRT may also undermine our fundamental
rights. Yet this technology is being designed and used in a largely unconstrained way, presenting risks to
basic human right and this technology has given rise to numerous controversies. These controversies
might represent serious reputational, operational, and financial risks for the companies involved in FRT,
as well as salient risks to human rights. As mass surveillance expands, technological innovation is
outpacing human rights protection. There are growing reports of bans, fines, and backlisting the use of
FRT.
As investors, we commit to incorporating the United Nations Guiding Principles on Business and Human
Rights (UNGPs)1 in our investment analysis of companies involved in Facial Recognition Technology.
These Principles urge companies to respect human rights and correct abuses when they occur. The
UNGPs call on companies to conduct human rights due diligence to "know and show" they respect
human rights through their own activities, and the activities directly linked to their products, services,
operations, and through their business relationships.
During this collaborative engagement initiative, we have mapped all the companies that might be prone
to use or sell FRT. In a second step we have reached out to a series of companies to detail our investors’
expectations when it comes to the technology. Following this initial outreach, we expect to have
different discussions with our portfolio companies and industry experts to understand the current
practices around the use of the technology. In a last phase we will dissipate these best practices around
the use of the technology to alleviate the standards of the whole industry and prevent severe abuses of
this technology use in the future. Companies which we target with this initiative include but are not
limited to Microsoft, Amazon, Nice systems, Ping an, Alibaba, Alphabet.
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The COVID-19 crisis has revealed the importance of resiliency and sustainability. Indeed, resiliency of the supply
chain focusses on the ability to face external shocks, while sustainability will analyze the social impact on
products and services’ lifecycle and how to align this impact with global sustainability challenges. Supply chain
sustainability management tends – erroneously – to be seen as costs and risks driven to assess the company’s
license to operate. Nevertheless, choice made in upstream i.e. at the level of the supply chain, could have an
impact on the risks but also on the opportunities of a company and unlock opportunities for innovation and for
greater labour productivity and efficiency. The regulation regarding responsibility towards its supply chain has
increased over the last decade – the French Corporate Duty of Vigilance Law (2017), the UK Modern Slavery Act
(2015) or the California Transparency in Supply Chain Act (2010) to name some of the main ones. The EU
Commission is already regulating the topic and the EU Social Taxonomy will aim at this as well. This is also done
in alignment with the OECD Due Diligence Guidance.
The Uyghur Forced Labor Prevention Act, a Federal Law in the US, showcases the necessity to consider human
rights in the supply chain. The act’s goal is to ensure that American entities are not funding forced labor among
ethnic minorities in the Xinjinag region. This means that some manufacturers from the region are sanctioned to
export products to the US. In case these manufacturers are part of a supply chain of a US company, this might
bring problems the company’s supply chain. A proper human rights due diligence would have avoided this
problem.
Study case – human rights due diligence – Sungrow
The solar industry is particularly vulnerable to forced labour in the Uyghur Region as 95% of solar
modules rely on one primary material – solar-grade polysilicon, and because polysilicon manufacturers
in the Uyghur Region account for approximately 45% of the world’s solar-grade polysilicon supply.
Moreover, all polysilicon manufacturers in the Uyghur Region have reported their participation in
labour transfer programmes and/or are supplied by raw materials companies that have. These labour
transfer programmes are one for the ways the Chinese government keeps the Uyghur population in
check through forced labour, a clear infringement of the UN Guiding Principles on Human Rights.
Under the UN Guiding Principles on Business and Human Rights, all companies are expected to conduct
effective human rights due diligence to ensure that they are not causing, contributing or linked to
human rights abuses, through their direct or indirect actions. Second, companies should demonstrate
steps to engage and escalate any business relationships with customers and suppliers connected with
human rights harms.
It is in this context that we reached out to Sungrow an request the company to carry out a human rights
due diligence and escalate the business relationship with one of its suppliers which has been accused
of relying on forced labor in the Xinjian region.
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In 2020, DPAM decided to join the collaborative initiative Investor Alliance for Human Rights.
The Investor Alliance for Human Rights is a collective action platform for
responsible investment that is grounded in respect for people's
fundamental rights. The initiative focuses on the investor responsibility to
respect human rights, corporate engagements that drive responsible
business conduct, and standard-setting activities that push for robust
business and human rights policies. The membership is currently
comprised of over 160 institutional investors, including asset management
firms, trade union funds, public pension funds, foundations, endowments,
faith-based organizations, and family funds. Their members currently
represent a total of over US$4 trillion in assets under management across
18 countries. The initiative’s main goal is providing its members with the
necessary tools to assess the human rights alignment of their investments.
Finally, DPAM aims to increase its impact for more sustainable finances
and as a responsible investor by engaging in education. Organizing
dedicated annual conferences on sustainable topics, inviting experts in
committees but also in quarterly meetings with its investment
professionals and sharing its knowledge and expertise through blogs and
dedicated digital platform, DPAM increases knowledge about sustainable
investments and reduces prejudices sustainable investments might suffer
from.
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3. ENGAGEMENT FOR A BETTER UNDERSTANDING OF THE SUSTAINABLE PROFILE
OF COMPANIES
DPAM as Active, Sustainable, Research-driven asset manager has the ability and opportunity to choose between
divesting and engaging. Indeed, when the risk – being of reputation or material for companies who deny the
paradigm change climate is requiring on their business – is too high, exclusion appears to be the only option. But
the framework must be clearly defined and set up. This is the aim of our Policy on controversial activities. It sets
our standards in terms of environmental accountability. The way DPAM invests matters.
Engagement will likely be the prioritised approach. Based on in-depth research with notably the use of
scorecards, which focus on the main fundamental and ESG KPI’s, our portfolio management and research teams
are able to identify the key and underlying risks and opportunities with a forward-looking perspective, which is
clearly lacking with traditional exclusion and divesting approaches. These scorecards also integrate material risks
and opportunities linked to the UN SDG’s to have a full picture of the investment impact and to assess the most
effective way to make the required pressure on companies for a sustainable and inclusive growth.
As an active, sustainable and research-driven asset manager, the priority of our engagement is making better
investment decisions by clarifying ESG concerns, strengthening convictions, identifying new opportunities, etc.
The engaged dialogue on specific ESG questions helps to make better informed investment decisions, based on
better understanding of the global sustainable picture. The aim is investing for sustainable performances over
long-term. It is therefore better to get the highest level of information on a company to identify opportunities
and avoid bad surprises which would force DPAM to sell. Furthermore, it could be more efficient and effective
to firstly discuss concerns and expectations with investees (for mutual learning) than immediately divesting.
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The engaged dialogues are carried out by portfolio managers, analysts and responsible investment specialists.
Indeed, more than 20 buy-side equity and credit analysts are continuing their efforts to apply environmental,
social and governance factors upstream in the investment process, supported by the Responsible Investment
specialists. Throughout their numerous meetings (approx.750 meetings) with companies' management teams,
our analysts encourage companies to report on their efforts to incorporate the ESG challenges into their
strategies and to adopt the best practices within their industry. In line with DPAM's sustainable and responsible
philosophy we both invest in the best ESG profiles, and we encourage and promote best practices among issuers
with more moderate ESG scores but which demonstrate a genuine willingness to improve. The aim is always to
encourage efforts and promote best practice in the ESG area.
DPAM also performs engagement through specific engaged dialogues based on materiality issues as identified in
our proprietary assessments (e.g. scorecards, controversy assessments, etc.).
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III. DPAM’S ENGAGEMENT ACTIVITY INTO FIGURES
1. HOW DID WE ENGAGE IN 2021?
All statistics below refer to the number of issuers on which DPAM has entered into dialogue to promote ESG best
practices.
Collaborative means engagement carried out through a collaborative initiative (FAIRR, Climate Action 100+, CDP)
DPAM is member of.
Data provider is an engagement with one of our ESG data providers as DPAM considers its responsibility as
intermediary between data providers and issuers to improve data and information to get the most relevant ones
disseminated in the financial sector.
Individual engagement is engagement DPAM has decided to launch on its proper initiative.
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2. ON WHICH TOPICS DID WE ENGAGE IN 2021?
Solely focusing on the engagements done to improve society, the prioritised topics breakdown are depicted
below of.
ESG dimension of our engagement
Environmental engagement: topics breakdown
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Social engagement: topics breakdown
Governance engagement: topics breakdown
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3. WHICH RESULTS DID WE OBTAIN IN 2021?
Regarding engaged dialogue in the framework of improving our fundamental research, the outcome is rather to
obtain answers to our questions. Nevertheless, these aim at clarifying ESG concerns or confirming ESG
advantages of companies. In all cases, it is also a way to contribute to a positive impact to the Society and
conveying our expectations to our investees. The outcome can therefore be considered negative (no answer),
ongoing (awareness but no result yet) or positive (willingness to change and adapt). There is however no formal
escalation process.
Engaged dialogue for a better fundamental research: outcom
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Negative engagement: engagement expectations were not met and led to the next step in the escalation
process This process is case dependent.
On-going engagement: the dialogue is still going on and any conclusions on the success or failure of the
engagement cannot be drawn.
Positive engagement: engagement expectations were met, and the engagement dialogue is closed.
Impact engagement results
26
Engagement results by types of engagement across engagement for research
purposes and conviction based engagements
Engagement results by types of topics across both types of engagement
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IV. KEY THEMES AND PRIORITIES FOR COMING YEARS
1. CLIMATE HAS BEEN AND WILL REMAIN DEFINITIVELY A TOP PRIORITY ON THE
PUBLIC AGENDA’S.
Almost all countries have committed to carbon neutrality in the coming decades. This has economic and financial
consequences. Firstly, it means a complete exit from fossil fuels by 2050 and an aggressive decarbonization
process. Secondly, it is an estimated investment cost of over USD 5 trillion per year until 2030, which requires
considerable financing.
THE RACE TO ZERO EMISSIONS IS NOT JUST A STATEMENT!
Clearly not for DPAM.
Since March 2020, DPAM committed to publish an Annual Climate Risk Report to provide clients, prospects and
the broader stakeholder community with insights and updates on the integration of climate-related aspects in
our investment decision making process. The disclosures are setup according the recommendations of the Task
force on Climate-related Financial Disclosures (TCFD), hence focusing on climate risk governance, risk
management, strategy and metrics & targets’ setting.
Closely linked to the overall climate risk management approach, financial institutions are increasingly questioned
about the Paris-alignment of their investment portfolios and net zero ambitions. Although climate-related risk
integration and Paris Alignment/Net Zero2 ambitions do not necessarily imply the same, DPAM is nonetheless
committed to consider and assess both. On the former, our latest TCFD report already provides insights on the
governance, risk management and strategic approach, including the consideration of Paris alignment of our
investees for carbon intensive sectors.
On the latter, i.e. the Paris Alignment/Net Zero target setting (4th component of the TCFD recommendations),
DPAM’s TCFD Steering Committee decided to develop an assessment trajectory prior to taking any DPAM-wide
target decision, as this might imply several investment consequences. The variety of available and existing
standards, expectations, pathways, methodologies and tools result in different types of targets set by financial
institutions, with implications for investment trajectories and performances. Hence, to ensure we have a clear
view on all implications, a thorough feasibility assessment has been carried out.
The internal assessment incorporates a broad range of feasibility studies, including financial feasibility,
investment risk implications, legal compliance, data accuracy and availability, scientific foundations and practical
implications.
The sustainable ambition of DPAM to commit to the net zero initiative will lead to an even more intense
involvement in the CDP and CA100+ collaborative initiatives. More information is provided in our 2021 TCFD
Report.
2 Since the launch of the Paris Agreement back in 2015, due to the increased scientific evidence and international pressure, the concepts of ‘Paris Alignment’ and ‘Net Zero’ have gradually converged. Paris Aligned investments aim at limiting global warming to 1.5°C. More concretely, this implies directing capital towards zero-carbon activities and (climate) solutions at a pace consistent with lowering global GHG emissions by 40-50% by 2030 and at an average annual rate of 8% between now and 2050.
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2. SOCIAL – BACK TO THE FOREFRONT OF THE ESG SCENE
During the last two-three years, the focus has been mainly on one single dimension: Environment and in
particular Climate. Nevertheless, the sanitary crisis has demonstrated the key role of the social pillar and how
the three dimensions – environment, social & governance – are interconnected are therefore require a global
approach. This has always been a conviction at DPAM
On the social front, the focus remains on the complex consideration of human rights throughout the value chain,
the famous duty of diligence implemented by France and the UK. However, the first draft of the Social Taxonomy
was published last summer, and it promises lively and admittedly subjective debates on implementation. As
explained before, companies will likely bear the responsibility in case human rights infringement take place in
their value chains. They will therefore need to set up proper human right due diligence mechanisms and align
their activities and processes with the UN guiding principles on business and human rights.
2022 will therefore be the year where we will have to proactively will reach out to companies on the set up of
the proper mechanisms to map their supply chains and identify potential human rights infringement, rather than
working in a retroactive way. The cases in, for example, in the Xinjian region in China or the cobalt mines in the
DRC demonstrate that the next human right infringement is just around the corner, and companies’ proactive
stances on these issuers are vital. Digital rights are becoming increasingly relevant in today’s tech-focused world.
We need therefore to ensure that human rights are fully present in the digital space. The EU’s Digital Services
Act (DSA) and the Digital Markets Act (DMA) will be pioneering gamechanger in this regard. Assessing company
practices on digital rights is still difficult due to a lack of standardization. The use of facial recognition technology
make respecting these rights even more complex.
Digital rights pertain to all human rights in a digital environment. This definition is quite broad, which is why
these rights tend to focus on distinct issues. These include -among others- the right to privacy, freedom of
expression and the right to internet access.
Considering these digital rights and the role that IT companies play, we are convinced that personal data is an
economic driver and resource for innovation. Indeed, such data is a key asset for companies, but it is also tied
to key risks to be managed in the corporate strategies and business. First, a digital trust deficit could erode
reputation and brand. Companies in the payment industry, for example, attract customer based on consumer
trust. A violation of that trust can significantly hurt these companies. Second, data protection breaches and
misuses could lead to high fines and penalties, which are material for the business bottom line of the company.
THE PECULIAR CASE OF FACIAL RECOGNITION
Since digital rights can be impacted through a wide range of situations and technologies, we aim at identifying
the future technologies that may challenge these rights. In this context. We have joined a collaborative investor’s
initiative that focusses on facial recognition.
The concept of facial recognition relates to ‘the process of identifying or verifying the identity of a person using
a picture or a video of their face‘.
This initiative addresses the human rights impact linked to the development and use of facial recognition
technology. The goal will be to first understand and learn about the human rights issues linked to this technology,
define best practices and disseminate these in companies that are exposed to this technology. In 2022 we will
have finished the consultation with the companies on their best practices in order to prepare a best practice
guide for companies active in using this technology.
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3. GOVERNANCE: THE SHIFT FROM SHAREHOLDER PRIMACY TO STAKEHOLDER
CAPITALISM
In terms of governance, the regulatory requirement of applying minimum safeguards led us to reinforce our
scrutiny over controversies, incidents and scandals that issuers may be exposed to. Moreover, the shift from a
shareholder supremacy model towards a stakeholder governance model emphasises the notion of the
company’s “mission” towards Society. This opened the door to interesting debates on the delicate balance of
the corporate governance microcosm.
Following this debate on the purpose and mission of business in society, the question of tax equity and tax
avoidance (closely related to competition law) arises. This is a complex subject on which initiatives by sustainable
finance actors are still generally rather timid.
However, much has happened in recent months in terms of international tax harmonisation. Joe Biden's
announcement in April of a major overhaul of corporate taxation in the United States - the "Made in America
Tax Plan" - already put an end to decades of corporate tax cuts. And last June, the G7 agreement laid the
foundations for an international framework for the taxation of multinational companies, de facto paving the way
for a global minimum corporate income tax rate for multinational companies. There are also initiatives, notably
at the EU level3, to request country by country reporting of corporate revenues and profits, which would make
tax optimization more difficult for multinational corporations.
The topic of tax transparency and tax fairness is a priority topic for DPAM portfolio management and research
teams due to its high materiality. Yet, it is also a particularly sensitive topic for many companies and some of
their shareholders. We have therefore carefully defined a progressive and evolutionary approach, designed to
accompany the progress of companies in these areas. This approach is based on engagement, as DPAM remains
convinced that engagement can help promote responsible practices in the tax area.
DPAM uses several metrics about tax transparency, the involvement in tax controversies, the estimated
corporate tax gap, and the level of confidence of the estimates, in order to identify the companies which we
believe are involved in aggressive tax optimisation. DPAM systematically verifies the rationale behind the
inclusion of companies on the list and reserves the right to add or subtract companies to the list, when it identifies
a company at risk on taxation matters, or conversely when it detects that the estimates used to draw the list are
incorrect. From there, DPAM prepares engagement questions, to be addressed to company management, aimed
at promoting good practice in tax transparency and tax fairness. To do so, DPAM refers to the GRI 207: Tax 2019
standard, which is the first and only globally applicable public reporting standard for tax transparency. The GRI
207: Tax 2019 standard sets expectations for disclosure of tax payments on a Country by Country basis, alongside
tax strategy and governance. It is designed to “enable organizations to better understand and communicate
information about their tax practices publicly. When defining engagement questions, DPAM checks whether the
company has published a Tax Strategy document, whether it is already reporting on taxes using the GRI 207: Tax
2019 standard, and/or whether this Tax Strategy is already aligned with these standards.
By highlighting the gaps between companies' practices and good practice and engaging with them, DPAM
encourages companies to upgrade their practices on issues of tax transparency and fairness. By repeating this
exercise year after year, DPAM will be able to support and accompany companies' progress on these issues over
time.
3 EU directive on Public Country by Country Reporting
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V. BE FOCUSED FOR BIGGER IMPACT
DPAM recognizes the proliferation of engagement initiatives on general ESG issues and in particular climate
change. We consider that more centralization and streamlining of initiatives would allow for greater efficiency,
coverage and above all impact on companies for society.
A relevant initiative is an initiative with clear scope, clear expectations and objectives and appropriate escalation
process. We believe that it is better to join existing initiatives and give them every chance of achieving the desired
results than to launch new initiatives with other, similar, but still unfulfilled objectives. So, to avoid contributing
to this proliferation of various engagement initiatives, we have defined our own “check list” before joining new
invitation to optimize our results and the results of the already launched initiatives.
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DISCLAIMER
The information contained in this document and its attachments (hereafter the “documents”) is provided for pure information purposes only.
These documents do not represent an investment advice and do not form part of an offer or solicitation for shares, bonds or mutual funds, or an invitation to buy or sell the
products or instruments referred to herein.
Applications to invest in any fund referred to in this document can only validly be made on the basis of the key investor information document (KIID), the prospectus and the
latest available annual or semi-annual reports. These documents can be obtained free of charge from Degroof Petercam Asset Management sa, the financial service provider
and on the website of the sub-fund at www.dpamfunds.com.
All opinions and financial estimates herein reflect a situation on the date of preparation of these documents and are therefore subject to change at any time without prior
notice. Specifically, past performance is not necessarily indicative of future performance and there is no guarantee it will be repeated.
Degroof Petercam Asset Management nv (DPAM), with registered office at Rue Guimard 18, 1040 Brussels, and which is the author of the present document, has made its
best efforts in the preparation of this document and is acting in the best interests of its clients, yet without carrying any obligation to achieve any result or performance
whatsoever. The information provided is from sources which DPAM believes to be reliable. However, DPAM does not guarantee that the information is accurate or complete.
These documents may not be duplicated, in whole or in part, or distributed to other persons without the prior written consent of DPAM. These documents may not be
distributed to retail investors and are solely restricted to institutional investors.
DPAM SA - Rue Guimard 18 | 1040 Brussels | Belgium
CONTACT DETAILS
Ophélie Mortier
Responsible Investment Strategist
Tel + 32 2 287 97 01
dpamfunds.com
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