What it takes to be an effective ESG ‘activist’

Hamish Chamberlayne often finds himself speechless. As an avid follower of any news, reports and other information on sustainability, it is difficult to rationalise the environmental and social woes of the world around him.

Yet he is fortunate enough to be able to do something positive to effect real change. In his role as Head of SRI at Janus Henderson Investors, and Portfolio Manager of the firm’s US$1.3 billion* Global Sustainable Equity Strategy. Chamberlayne can exert an influence via the portfolio’s investment process by allocating capital towards companies that are playing a positive role in the transformation of the global economy – and avoiding allocating to those which do harm.

It is not a perspective or responsibility that comes overnight. And being able to ‘walk the talk’ is what determines whether any fund manager is cut out for such a task.

But his approach is grounded in the conviction he feels every day – that he and his team can generate better risk-adjusted returns by backing those businesses that provide solutions to environmental and social challenges.

At the same time, being an ‘activist’ on environmental, social and governance (ESG) matters does not have to mean demanding that a company changes its business model.

Instead, following clear investment criteria about the kind of companies to invest in and those to avoid can often have a positive knock-on effect.

Take the engagement of the Global Sustainable Equity Team on the issue of cobalt.

They identified cobalt, which is used in batteries for mobile devices, as a key risk for the Strategy and an area for engagement. This is based on the majority of the world’s cobalt being located in the Democratic Republic of Congo (DRC), which suffers continued violence and conflict, and subsequently has very poor human rights, health and child labour track records.

The team’s approach is to engage with companies that have cobalt in their supply chain, along with a non-governmental organisation (NGO) to understand the challenges involved in implementing the OECD’s five-step framework for ensuring due diligence within a mineral supply chain.

Microsoft is one example. As one of the world’s largest technology companies, it has a material influence on the demand for cobalt. Yet when Janus Henderson first started engaging Microsoft on this topic, the company had not traced the cobalt used in its supply chain to the original mines in the DRC.

By the time the team met Microsoft’s Senior Director, Responsible Sourcing and Certifications towards the end of 2018, however, the tech giant had increased the transparency of cobalt within its supply chain by improving traceability, due diligence and controls, in line with OECD guidance. Furthermore, the company had started to support an NGO that provides financial support to families and education services.

Taking a broader and more global perspective, meanwhile, Chamberlayne’s team decided to up the ante on tackling climate change.

With low carbon investing central to its philosophy, the Global Sustainable Equity Team joined the Net Zero Carbon 10 initiative. This enables investment managers to better align their investment policies to the requirement for carbon neutrality, rather than just emissions reduction. The approach focuses on net zero emissions.

The team has since found that an upside of this has been more focused discussions with those companies that have begun a low carbon journey but without a target to achieve neutrality by 2030.

These and many other examples of proactive steps on a daily basis show why passion and understanding need to underscore every conversation that Chamberlayne and his team have. This applies as much to internal discussions as it does to dialogue with senior management from both existing and potential companies that the Strategy invests in.

All this doesn’t come easily. Having a positive impact on the wider economy is only possible by moving away from the computer screen and looking beyond the abstract green and red numbers to find ways to relate to the real world.

*As at 30 June 2019.

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