Devon stewardship takes stance on ESG

Devon Funds Management has reported that its Global Sustainability Fund divested its Starbucks stocks last year.

Wednesday, March 15th 2023, 6:45AM

by Andrea Malcolm

Starbucks was one of a number of engagement examples, along with local companies Freightways, Contact and Amcor, featured in Devon’s first sustainability report.

Devon offers four sustainability-labelled products: Devon Sustainability Fund, Devon Global Sustainability Fund and Devon Global Impact Bond Fund; the latter two added in 2022 and run by international investment firm Wellington Management. At the start of the year Devon partnered with iwi-based Tahito in its ethical fund Te Tai o Rehua Fund is based on Māori indigenous values.

Sustainability action outlined in the report include a survey on climate related financial disclosure of all S&P/NZX50 companies, becoming a founding signatory to the Aotearoa New Zealand Stewardship Code in 2022, and placing DGL on its exclusions list in response to offensive comments by CEO Simon Henry about My Food Bag co-founder Nadia Lim.

Engagement

The Starbucks divestment is included among case studies on engagement. The Global Sustainability Fund (winner of last year’s Mindful Money award for best new ethical fund), invests into the Wellington Global Stewards fund which sold its position in Starbucks last September. This came after ongoing engagement with the coffee retailer failed to address concerns about labour relations.

This month Starbucks’ former, now interim, CEO Howard Schultz will testify before a US senate committee on health, education, labour and pensions investigating the company’s intense opposition to national efforts by workers to unionise.

Devon portfolio manager Victoria Harris says Wellington had ongoing and repeated engagement with Starbucks. “Having confidence in management is key. There is an element of you can only try so hard to make a business change. To me [failure to engage] is a red flag of systemic problems in the business and that they’re not taking certain issues seriously. That creates risk but generally today we are seeing a lot of boards and management teams being a lot more receptive to investors. They know if they can clearly articulate their strategy around environmental, social or board issues it will be better received by investors and enable them to gain access to that capital. It’s in their best interest.”

Positive engagements have included Freightways, Contact Energy and Amcor in New Zealand. This includes conversations with Freightway about the future of its fleet and its ability to transition to more fuel efficient or EV vehicles; meetings with Contact over its and the industry’s transition toward 100% renewable energy, and re-assurances from Amcor that it is on track to make all its packaging products recyclable and reusable by 2025.

“We have engaged multiple times to further accelerate targets to reduce emissions,” says Harris. “They have been very receptive about investor strategy.”

Proxy-voting

On the proxy-voting side of stewardship, Devon voted on 222 proxies on behalf of retail clients last year.

“Devon votes on every single proxy vote and I think that’s part of our ethos of responsibility.” says Harris. “Voting started in the institutional space, especially the focus on ESG but it is definitely increasing in the retail space, especially with world events.

There are definitely issues that come up multiple times a year that we disagree with and it might not always create change but it at the very least raises an awareness with the board.”

She says Devon votes on water efficiency, pollution, waste and recycling, and carbon emissions. Social voting takes place on labour practices, treatment of staff, supply chain risks, and modern slavery.

“We saw that highlighted during Covid looking at how companies treated and supported staff, dealt with layoffs. Governance is about board independence, how good the auditor is, remuneration of directors, diversity.”

Harris says integrating ESG metrics into CEO and management team remunerations if they miss their emissions target. “Companies in Australia are a bit more advanced with that but I think it will be a big focus here this year.”

Revenue thresholds

Devon uses revenue thresholds as criteria for its exclusions approach. The Devon Sustainability Fund excludes companies with any revenue from tobacco and manufacturing, armaments, whaling, and any companies on human rights watchlists, and on a separate tier, those with more than 10% of revenue from alcohol manufacturing gambling, pornography, and fossil fuel exploration, extraction, refining.

“We had a lot of consultation and looked at a lot of national standards to determine what they should be. We’ve taken the stance of putting these thresholds in place to draw a line in the sand, but we are very focused on making sure we are engaging with companies to progress.”

Predictions on which ESG areas will be big for 2023 include; on the environmental front - biodiversity, carbon markets, scope 3 emissions and energy transition; for social - labour issues and social licence around indigenous rights; and on governance - culture and leadership and cyber security.

Tags: Devon FM