Case study by Candriam
Signatory type: Investment Manager
Operating region: Global
Assets under management: €122 bn
Why we engage with companies on the SDGs
At Candriam, engagement activities are integral parts of our fiduciary duty, contributing to a better assessment of the ESG risks and opportunities faced by issuers and prompting them to improve the way they manage these risks.
The 17 UN Sustainable Development Goals (SDGs) are a good starting point to lay solid foundations for impact investing, sharing a common language and time frame. By tackling more strategic issues, the SDGs go beyond standard ESG topics, which traditionally focus on operational managerial practices.
Candriam engages with companies on their business model, product range and related strategy. At a time when investors are increasingly required to report on the true impact of their investments in communities, we believe the SDGs serve as a guide for leading exchanges with issuers.
How we engage with companies in general
Topics of dialogue are chosen based on their materiality for considered sectors/companies and after internal ESG analysis. Main objectives range from encouraging improved ESG disclosure to supporting investment decision making and influencing corporate strategies and practices. Target companies are chosen based on holdings, theme materiality, the trendsetter nature of the company and the interest of portfolio managers, who may choose to take part in the dialogue with company representatives.
Individual dialogue is usually preferred; the company is contacted by email initially and invited to a dialogue. However, experience shows that in questioning a company’s intrinsic business model or other sensitive issues, acting collaboratively is usually more effective. From this perspective, involvement in a collaborative initiative may be chosen if an opportunity arises. The exercising of voting rights and related pre- or post-AGM dialogues are also opportunities for us to express our opinion and eventually ask for changes to be made.
Engagement follow-ups include considerations on how companies integrate our recommendations. Depending on engagement achievement and level of priority, dialogue is closed or continued. Outcomes are integrated with research and may influence opinions and portfolios.
Example of SDG engagement
Food is at the crossroads of several major social and environmental concerns. Intensive production, overconsumption and the global homogenisation trend of diets take us further away from the natural balance that has been the rule for centuries.
The consequences are environmental damage: unsustainable use of resources as well as the associated release of emissions and waste that jeopardize the supply/demand balance. Large-scale food production and the search for extreme yields contribute to loss of biodiversity, depleting soils that, in turn, require fertilisers, and affect water and its availability. Agriculture, mainly through deforestation and shifting patterns of cultivation, use of nitrogenous fertilisers and methane from ruminants or rice paddies, accounts for over 20% of global anthropogenic greenhouse gas emissions.
Shifts in diet patterns and the industrialisation of production also have strong social consequences ranging from land grabbing in developing countries to food safety concerns and public health issues.
These concerns fall under several SDGs:
- SDG 2: sustainable food production, seeds diversity, fight against malnutrition (including obesity);
- SDG 3: non-communicable diseases risk reduction;
- SDG 12: sustainable consumption and production;
- SDG 13: integration of climate change measures into national policies, strategies and planning;
- SDG 14: regulation of harvesting and overfishing targets; and
- SDG 15: conservation, restoration and sustainable use of lands and ecosystems.
For Candriam, the food engagement case is relevant to businesses and investees as they tackle regulatory, reputational and competition risks as well as seek opportunities for early positioning on less impactful product ranges.
Our duty as a responsible asset manager is to ensure that:
- product quality and safety assurance, including relevant traceability and supply chain monitoring, is effective, as pressure from society and public authorities following food safety scandals continues to grow;
- food companies involved in livestock have implemented measures to reduce the use of antibiotics and pesticides preventing risks associated with antimicrobial resistance and other health concerns related to the traces/residues of chemical substances in final products;
- corporate R&D serves the regulatory demand for healthier diets, notably through product reformulation, development and commercialization of healthier products and consumer education; and
- the need for protein diversification is integrated into food corporation strategies.
Candriam engaged on this topic on several fronts:
- individual dialogue targeting product reformulation with companies from the food and beverage and food staples retailing sectors;
- actively supporting two Farm Animal Investment Risk and Return (FAIRR)-led collaborative initiatives on the use of sustainable proteins and antibiotics; and
- supporting shareholder resolutions calling for more sustainable agriculture practices, including the limited use of pesticides.
The evolution of corporate disclosure in public reporting, acquisition of specialised businesses and related operational changes are taken into account when measuring the impact of our engagement and carrying out our ESG assessment on the involved companies.
Individual dialogue example
During the 2018 Sugar Campaign, we engaged with a world-leading consumer product company that generated most of its revenues in Europe and Asia and specialized in beverages, including carbonated drinks. This company was one of the 19 target global F&B companies. The increasing regulatory pressure on sugary drinks (UK, France), combined with healthier diet national campaigns, severely hit the targeted group’s sales and margins. Candriam ESG and financial analysts/portfolio managers were involved in discussions with the IR senior general manager.
The company confirmed that health initiatives were high on its agenda. Its first attempt to lower sugar in its historical drinks through reformulation faced headwinds from consumers, which forced the group to reinvent its portfolio and enter the healthy beverage segment with new products. It has strongly invested in R&D and marketing but also leveraged experience acquired in markets less focused on sugary drinks. What was previously seen as a risk is now considered a competitive advantage.
Management was pleased to go beyond the traditional speech on income volatility and discuss operational and marketing action plans, as well as to focus on the importance of healthy products in their current strategy, as positive results were already achieved. They appreciated our interest in the field. This dialogue enabled us to update our opinion on the investee company and re-adjust our valuation models.