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Issue #107: A weekly update on responsible investment.
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\\ Weekly Insights \\
Terry Smith, a veteran stockpicker who runs the £28.9bn flagship Fundsmith Equity Fund, wrote in his company’s annual letter.
“Unilever seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business. The most obvious manifestation of this is the public spat it has become embroiled in over the refusal to supply Ben & Jerry’s ice cream in the West Bank. However, we think there are far more ludicrous examples that illustrate the problem. A company that feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches).”
This has sparked a lot of discussion in the ESG world as many view Unilever as one of the strongest (if not the strongest) in terms of its disclosure. The Financial Times questions if Terry Smith’s call out was able to hit the mark. Based on his Hellmann’s mayonnaise critique the FT points out:
“Other equally venerable brands have fallen by the wayside. Kraft Heinz’s Velveeta cheese is also more than 100 years old but is no longer flavour of the month with more health-conscious consumers. Unilever’s high-fat condiment [Hellmann’s] is under similar threat. Mayo sales fell 13.8 per cent in the US last year.”
As consumer preferences move more and more to healthier foods, Unilever is right to consider how it can keep it’s products relevant for a changing market — making mayo more sustainable could make a difference.
Bloomberg Money Stuff writer Matt Levine also comments this is a high-profile case against a consumer brand when these have traditional been happening to energy companies. “[At energy companies] shareholders have deep disagreements about both the morality and the economics of drilling a lot of oil now versus investing a lot in green technology. Sometimes the solution proposed there is to split up the company into a green company that will appeal to ESG-focused investors, and a legacy-coal-and-oil company that will appeal to cash-flow-focused investors. That seems less likely to work here. I don’t think Unilever will separate out its mission-driven mayo from its cynical opportunistic mayo. It’s really just the one mayo.”
Given Unilever’s strength in ESG / that the other large shareholders back their progress, I doubt Terry Smith’s comments will have much impact. It will be interesting to follow ESG pushback as 2022 progresses.
\\ Nossa News \\
In equites, we screen for Sharia-compliance based on two criteria:
Sources of revenues: Here lies considerable overlap with the ‘S’ part of ESG, being socially responsible. Businesses involved in “undesirable” activities, such as the production of weapons, tobacco, pornography, gambling, alcohol, etc are excluded.
Balance sheet ratios: There are balance sheet ratios that must be met for a company to be deemed compliant; ‘excessive’ debt or ‘excessive’ cash would rule out a security.
Read our interview with Akber Khan, Senior Director at AI Rayan Investment.
Better workforce data from half of the FTSE 100
We are happy to have helped half of the FTSE 100 provide workforce data to their investors via our work with the Workforce Disclosure Initiative.
A record 173 publicly listed companies disclosed data on workforce practices to investors in 2021 through the Workforce Disclosure Initiative. The number of FTSE100 companies disclosing employee data now stands at 50 — up from 39 in 2018 — with BlackRock, abrdn, M&S, Mahindra, Puma, SingTel and National Grid taking part.
\\ Top Stories \\
The JUST 100 List for 2022 is published
The annual Rankings reflect the performance of America’s largest publicly traded companies on the Issues that matter most in defining just business behavior today. The Issues, and their weights in the model, are determined by polling of the American public. The 2022 Rankings were published on January 11, 2022.
Big business should talk more about people
Responsible investment campaigner ShareAction found that investors are more likely to vote for environmental or governance resolutions than social ones. Financial Times speaks to the Workforce Disclosure Initiative on their dataset hearing: “The best response rates in the past were on governance issues like board responsibilities and policy statements, unlikely to capture the public imagination. The spirit of openness doesn’t extend as much to the nitty gritty of pay, conditions or safety. Staff turnover appears a closely guarded secret, says ShareAction’s Rosie Mackenzie.”
Sustainable funds face threat from tech sector turmoil
Environmental, social and governance-focused funds face a more uncertain outlook in 2022, as pressures mount from research costs and hits to the big growth stocks that have helped power the investments’ outperformance. ESG inflows boomed throughout 2021, even as they slowed in pace towards the end of the year, with global sustainable fund assets doubling in the six months to September 2021 to reach $3.9tn, according to data provider Morningstar. But the breakneck expansion of the ESG sector could stall if performance starts to approach or underperform benchmarks, after years of high-flying returns driven by powerful rallies in growth stocks.
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\\ Report & Paper Highlight \\
Global Risks Report — WEF
What are the most severe risks on a global scale over the next 10 years?
What risks have worsened the most since the start of Covid?
Integrating biodiversity into a risk assessment framework — Moodys
- Biodiversity-related risks are rising up the agenda for companies, investors and policymakers.
- Impacts, dependencies and governance are critical elements to assess companies’ biodiversity-related risks.
- The main driver of biodiversity loss is the loss of habitat due to land use changes, which also exacerbates climate change’s negative impacts on biodiversity.
- To understand companies’ governance of biodiversity issues, we assess the level of their commitment to protect biodiversity, based on disclosures. The average biodiversity protection score for 1,200 assessed companies was 32 out of 100, highlighting a general lack of disclosures. Within a subsample of 67 heavy construction companies, we find that 61% disclose commitments to address biodiversity. However, we consider nearly half of these companies “weak” in terms of the implementation of such commitments. This shows a clear disconnect between most companies’ commitments and tangible measures disclosed to reduce their impact on biodiversity.
What framework could be used?
\\ Leading Across ESG \\
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