Engaging for change

At Fidelity we focus on engagement in two ways - specialised engagements - those company-specific themes we have identified through our deep bottom up fundamental research, and thematic engagement - key themes we are addressing at an organisational level.  

Specialised engagements are powered by our proprietary ESG ratings system - which captures the ESG rating assigned by our investment team for every company we research and accessible to all our investment team via our global research platform.

These ratings give us a view of how a company is dealing with ESG issues and provides us with the opportunity to take that information and replay it back to the company so that they are aware of where they are lacking relative to their peers, relative to the best in class in their industry, and give them the opportunity to fix that as well.

For every company, we can set an objective for those engagements, we can set milestones against which we'll measure those objectives. Our investment team and ESG analysts record and capture key information on these objectives in their ongoing review meetings and analysis, which enables us to track progress towards those specific objectives.

The second way we engage with companies is part of our thematic approach to engagement. Fidelity doesn't just have deep research, we also have a broad width of holdings around the world.  This gives us the ability to take a certain theme and then go to a sector or a subsector or a value chain and apply that theme in a consistent way.

A current example of our thematic engagements is our approach to climate change.  We want to look at banks and insurance companies and non-bank companies that are engaged in the financing of climate change, either through their lending book or their underwriting book or through their investing book, to see what kinds of risks that they're taking on in those books and whether or not they're really thinking about the climate change risks that are involved.

For emerging markets, much of our work is focused on banks and their financing of coal industries.  Given the very rapid reduction in the cost curve for renewable energy, questions are being asked if banks should be continuing to finance new coal power construction.  In developed markets we are focused on ensuring companies are setting broader net zero carbon emission ambitions and helping them to progress their journey towards a net zero future.

Another example is supply chain sustainability, particularly around the textile and apparel sector primarily within Asia. Looking on one hand at retailers, but also looking at the equipment manufacturers, cotton manufacturers, dye providers and asking questions around two specific topics. One is around human rights, which encompasses, but isn't exclusively about modern slavery within those supply chains. And the second is around their environmental footprint, including water usage, energy usage, waste disposal and treatment and so on.

At Fidelity we have a large ESG team globally dedicated to engagement and the integration of ESG into our investment process. With 17 full-time ESG analysts around the world split across six locations, they sit alongside Portfolio Managers in the same company meetings, asking the same types of questions to management so it’s a fully integrated approach. We believe that continuous and in-depth engagement is the best way to exert a positive influence on corporate behaviour. When we make investment decisions, we think carefully about how we can engage with the companies we own to create better results for a range of stakeholders, including employees and suppliers, and build long-term social and corporate value.  

As we move through the Covid-19 crisis, we expect engagements with companies to take on an even bigger role, both in terms of how we fulfil our social purpose as a fund manager and in terms of helping our clients achieve better financial and social returns from the companies in which they invest.