|Manulife Investment Management
|Region of operation
|Assets under management
|USD$492bn (as of 30 September 2021)
|COVERED IN THIS CASE STUDY
|Asset class and strategy
|Equity and fixed income
|Social issues: gender diversity
Why we do Stewardship?
Manulife Investment Management believes that active ownership practices are at the centre of good stewardship, helping to drive strong risk-adjusted investment return potential for our clients while we seek to make a positive impact on the environment and society. We believe that ESG factors contribute to the overall profile of an investment and that management of ESG risks and opportunities can lead to long-term sustainable returns. We see ESG analysis and stewardship as natural complements to our strengths as an active investment manager.
How we do it?
Responsible stewardship is an integral component of our business and culture, which extends across our public and private market investing activities in all geographies. We seek to engage with Chinese holdings in our capacity as an institutional investor to have a constructive dialogue on a variety of investment matters with the goals of enhancing long-term investment value and mitigating risk. An accurate understanding of engagement and voting techniques that are appropriate for the Chinese market is vitally important.
Our stewardship activities in China closely follow our global ESG Engagement Policy and align with our Global Proxy Voting Policy and Procedures, as we think good governance standards apply universally. However, on the other hand, we also consider the governance characteristics of local markets.
The right to vote is a basic component of share ownership and is an important control mechanism to ensure that a company is managed in the best interests of its shareholders. Where clients delegate proxy voting authority to Manulife IM, we have a fiduciary duty to exercise voting rights responsibly. The Manulife IM ESG Research and Integration Team is an important resource for portfolio management teams on proxy matters. ESG Team advice is supplemental to the research and recommendations provided by our proxy voting services provider.
Manulife IM also has an internal proxy voting working group comprising senior managers from across Manulife IM, including the equity investment, legal, compliance and ESG teams. The working group is responsible for reviewing regular reports, potential conflicts of interest, vote changes and non-routine proxy voting items. It also oversees the third-party proxy voting service provider. In particular, our ESG analysts actively review voting resolutions for companies in which:
- Manulife IM’s aggregated holdings across all client accounts represent 2% or greater of issued capital;
- A meeting agenda includes shareholder resolutions related to environmental or social risk management issues, or where the subject of a shareholder resolution is deemed to be material to our investment decision; or
- The issuer has been engaged by Manulife IM within the past two years, seeking a change in behaviour.
Engagement and ESG integration
We evaluate a wide range of ESG characteristics in both our equity and fixed income investment framework. We prioritise engaging with companies where our assessment suggests that ESG or other factors are potentially material to an investment’s risk/reward profile, taking into account the significance of an investment within a given portfolio, Manulife IM’s degree of influence, and the expected contribution to long-term value creation from a successful engagement.
Corporate governance risk is often a material consideration in our fixed income team’s credit assessment of an issuer. In general, weak governance is one of the primary reasons for an outright rejection of a credit because it is often difficult to quantify the effect of poor governance on the creditworthiness of a company and apply an appropriate notching to internal risk ratings. Negative influence from major shareholders and accounting deficiencies may lead to a rapid deterioration in an issuer’s financial profile and a significant rise in default probability. On the equity side, our unique GCMV template (Growth, Cashflow, Management, Valuation) focuses on the track record of the management, levels of independence and diversity, the presence of related-party transactions, and the background and stability of major shareholders.
We also participate in collaborative engagements with other firms in our industry. Engaging collaboratively with other investors amplifies our impact on the companies, industries and markets in our collective areas of influence. For the companies we engage with, collaborative efforts reduce the noise of numerous points of view, helping to focus on goal-setting and real outcomes. Collaboration is always in alignment with our fiduciary duty to our clients as an asset manager.
Engaging with portfolio companies to enhance gender diversity
As one of the founding members of the Board Diversity Hong Kong Initiative, we believe gender diversity on boards encourages better leadership and better corporate governance. Ultimately, we believe diversity increases corporate performance and global competitiveness for both companies and their shareholders.
We have reviewed and analysed all Hong Kong-listed companies regarding their board gender diversity, and prioritised engagement based on companies’ sector, size and impact. We decided to engage with a Chinese consumer staples company on its gender diversity because of its all-male board structure and the importance of the presence of female directors in the industry. During the engagement, we first listed academic studies justifying the positive correlation between a company’s board gender diversity ratio and its financial return. Meanwhile, we shared our understanding on the lack of female board directors in Chinese corporate boards historically, but we also compared the gender diversity of the company’s board with other Chinese and global consumer peers and asked the company to add at least one female director to its all-male board.
We also leveraged regulatory requirements to conduct our engagement. A recent consultation paper from Hong Kong Exchanges and Clearing proposes to end single gender boards, suggesting a three-year transition period. It also proposes requiring companies to set targets and timelines for gender diversity at board level and across the workforce.
It is rare to see a consumer staple company that has no female directors as gender diversity at consumer goods companies tends to be highest among all primary sectors. We engaged with the company and reiterated the importance for it to increase the representation of female directors on the board and offered to coordinate with Board Diversity HK to help search for qualified candidates. We were pleased to see the company appoint a female director to the board in December 2021.
Challenges and solutions
Current challenges in exercising stewardship in China include:
- the absence of a national stewardship code;
- insufficient corporate-level ESG information disclosure; and
- corporate green-washing.
Thus far, a stewardship code has not been established in China and there is inadequate appreciation of the value that stewardship can contribute to financial value. The China Securities Regulatory Commission (CSRC) released a Code of Corporate Governance for Listed Companies in 2002 and revised the Code in 2018, but it remains voluntary.
Gaps exist in ESG data in most markets, but particularly in the China A-share market. We expect regulators to enhance ESG data disclosure requirements for listed companies in line with international standards. Stock exchanges also have a responsibility to require companies to disclose financially material ESG factors as part of their listing rules. While data gaps remain, our local presence and experience of investing in Asia enable us to engage with Chinese companies to gain a comprehensive understanding of their business. We also engage collaboratively with other investors to take a leading role in advancing the entire industry.
Companies can make bold ESG claims, but responsible investors should be cautious of green washing, social washing and SDG washing. When companies have especially long-term commitments, engagement can be useful for understanding the near-term strategy and actions contributing to that goal – for example, the interim decarbonisation targets and capital expenditure requirements required to achieve a mid-century net-zero emission commitment. Similarly, when assessing green, social and sustainable bonds, we evaluate not only the ESG characteristics of the projects associated with the bond, but also the structure, the issuers’ sustainability strategy, and how this issuance supports that strategy.
 HKEX, “Exchange publishes consultation paper on review of corporate governance code and related listing rules,” regulatory announcement, 16 April 2021