Investor feedback to companies on ESG and risk management
AMP Capital has released its 2015 mid-year corporate governance report, Corporate Governance Report: ESG insights & proxy voting, which sets out its expectations in relation to the ASX Corporate Governance Council's new recommendations relating to disclosure of risk management and board composition.
The report canvasses AMP Capital’s emphasis on ESG analysis, noting it ‘digs deeper into the ESG risks and opportunities that each company faces’. When seeking to determine which intangible drivers of earnings growth are most relevant to a particular industry, the report notes that an ESG analyst would consider:
- Environmental factors: How likely is it that the value of a company in this sector will be influenced by how well they perform as a steward of the natural environment?
- Social criteria: How likely is it that the value of a company in this sector will be impacted by how a company manages relationships with its employees, suppliers, customers and the communities where it operates?
- Governance: How likely is it that the value of a company in this sector will be impacted by the quality of its leaders, the fairness of its pay structures, the audits and internal controls, and finally the rights of shareholders?
The mid-year report uses the banking sector of how it analyses ESG 'drivers of value' affecting investee companies as a case study, showing that there is strong positive correlation between the investment performance of companies in this sector and the way they manage their ESG risks and opportunities.
The report covers in detail how human rights and data and cyber security are seen as ESG risks that investee companies need to manage. And it clarifies that, while the risk management disclosures of investee companies provide insight into ESG risk management, they need to be supported by analysts ‘digging deeper’.
Also covered in the report are AMP Capital’s shareholder engagement and proxy voting decisions in the 2014—2015 financial year.
The report can be found at http://www.ampcapital.com.au/about-us/esg-and-responsible-investment/corporate-governance