Nadia Lim comments throw ESG into sharp relief

How should fund managers and investors view the Henry-Lim debacle?

Tuesday, May 10th 2022, 8:34AM

by Jenni McManus

The funds management industry is divided on how best to respond to last week’s furore involving celebrity chef Nadia Lim and DGL Group CEO Simon Henry.

At issue: is the making of deeply offensive and derogatory remarks by the CEO of a listed company a matter of responsible or ethical investing? Does it stray into ESG territory? Is it part of the social licence to operate? Or is it simply poor behaviour, requiring strong censure from the board but no other business consequences?

Many fund managers last week opted to place DGL on their exclusion lists amid the firestorm over Henry’s offensive and sexist comments about Lim, a co-founder and director of My Food Bag.

Kiwi Wealth, Generate and Simplicity were quick to blacklist DGL, saying Henry’s behaviour raised serious ESG red flags though none currently holds DGL shares. Kiwi Wealth said DGL would remain blacklisted until there was change in the senior leadership team.

Others, however, say while they condemn Henry’s remarks, the response should be proportionate to the harm and does not necessarily require what one terms a “stampede” of fund managers selling their DGL holdings or placing the company on their exclusion lists.

This market-watcher, who did not want to be identified for fear of a backlash, believes divestment should be a last resort, used for only the most egregious conduct. As an example, he cites mining giant Rio Tinto’s destruction of 46,000-year-old Aboriginal caves in the Juukan Gorge in Western Australia in May 2020. “I don’t want to let [Henry] off but there has to be a proportionate response,” he says.

Milford Asset Management sat in the middle, telling NBR – which broke the original story last Tuesday – that it had a “very small” DGL holding and preferred to engage with the company and try to drive change in that way rather than simply selling and walking away. Milford did, however, say it “absolutely condemned” Henry’s comments and would divest and add DGL to its exclusion list if it the company failed to engage or remediate its ESG issues.

Rodger Spiller, managing director of Money Matters, says Henry’s comments definitely trigger issues of responsible investing and the social licence. Company values are at risk when a CEO makes a comment viewed as sexist or racist and investors want to see this addressed by the board, he says.

On its website, DGL clearly states its value of respecting diversity. “The CEO making comments that do not adhere to this standard is cause for alarm,” Spiller says.

Barry Coates, founder and CEO of Mindful Money, concurs. “I think the remarks are shameful and completely inappropriate,” he says. “Many members of the public will find the remarks offensive and will choose not to hold DGL shares. Fund managers need to respond strongly to make it clear to DGL that these remarks are unacceptable.

“They will then need to decide whether they sell their holdings of the company based on whether there is a pattern of offensive behaviour and the actions that the company takes to discipline the CEO and put in place a strong diversity and gender rights policy.”

John Berry, CEO of Pathfinder KiwiSaver, says his business is not invested in either DGL or Lim’s My Food Bag but this is not the point. It’s about behaviour and leadership, he says.

“I sometimes bristle inside when people talk about 'stale, pale males' but if business leaders are going to talk about 'Eurasian fluff', is it any wonder we hear more of those three words?”

Berry says there is a wider issue here, beyond investment, and it’s “definitely” part of a business’s social licence to operate. “It’s about what is acceptable and what is not. If you’re an intelligent leader, you should be attuned to the feelings of other people and what’s acceptable socially.

“As a society and as an investment community and as a corporate environment, what behaviour do we expect from our leaders?”

Like others, Berry is looking for a strong and decisive statement from the DGL board which, four days after the comments were first published, had still not eventuated. (A statement expressing “disappointment” was released by the board on Friday night).

Andrew Bascand, managing director of Harbour Asset Management, says his business has no investment in DGL and he hasn’t studied the company so could not make specific comment.

But speaking generally, he says Henry’s remarks are a red flag from here on in, “in a number of respects across governance and the social pillars of ESG”.

“It does remind me of the Australian Royal Commission into banking and financial conduct where clearly there were cultural issues in many institutions. They were known about beforehand but not much was done about them. It doesn’t necessarily follow that poor culture will necessarily result in bad ESG outcomes but it is a warning signal,” Bascand says.

“We favour diversity across governance matters but we actually think culture is incredibly important.”

Investors have two courses of action in this type of situation, he says.

“The first is often a kneejerk one – to sell the stock. If you’re a small investor, that’s the course of action you might consider. The second course of action if you’re a larger investors might be to engage with the company, talk to people and find out what sort of action has been taken to ensure real change or that this won’t happen again. That would be quite important…..

“I think we all know what good and great looks like in terms of culture. There is no finish line in that regard. But we also clearly know warning signals and red flags. This isn’t a warning signal – this is a red flag.”

Tags: ESG