Approach to engagement

Wellington's impact investment teams believe partnership and engagement with companies and issuers in which we invest can create lasting value for our clients while enhancing our investments’ positive impact.

Engagement is a means of deepening our fundamental analysis of a potential investment and gauging the viability of our impact thesis. Our impact investment teams seek to approach engagement as we do our investment research, leveraging a multidisciplinary analysis that spans equity, fixed income and sustainable investment perspectives. As a fiduciary of our clients’ capital, we believe it is our objective to understand the full mosaic of an investee entity’s business or financial model, industry structure, and capital allocation decisions. We also believe that this approach is the most effective way to further our intended positive impact on people and the planet.

Once invested, engagement can help us drive the desired investment and impact outcomes. Specifically, in relation to impact, we find that by educating and supporting management teams, we may be able to help them exceed expected positive environmental and social outcomes.

Objectives of engagement

During our engagements, we have three main objectives:

1. Gain a deeper insight into matters relevant to our investment and impact thesis, and take corrective action if repeated engagement does not provide the necessary levels of comfort
2. Understand material sustainability considerations for existing or potential portfolio holdings
3. Help management and boards understand our impact objective and encourage disclosure of key performance indicators (KPIs) to measure the impact generated

Modes of engagement

Our impact investment teams, collaborating with Wellington’s SI Research and Stewardship teams, take a hands-on approach to engagement, meeting in person with boards, management teams, and other relevant decision makers. We also write letters and host calls, in some cases, multiple times each year. In practice, we tend to approach an impact engagement with the initial objective of understanding how management sees a company’s or issuer’s ability to effect positive change; this allows us to define the opportunity and outline longer-term goals.

Management teams are increasingly receptive to our requests for transparency or additional reporting on business strategies. However, they may need more time and support to evolve their practices and develop the resources and tools needed to assess and measure impact. Engagement enables us to work with them on how they can enhance impact contribution at a corporate strategy level, which in turn can empower management to articulate a stronger value proposition. We believe improved communication and transparency also lead to greater alignment across stakeholder groups.

Additional engagement tools

Proxy voting

Within our equity portfolios, we see proxy voting as an important engagement tool that allows us to be more transparent with our investee entities and drive change. Where required, we seek to leverage the proxy season to have robust conversations with management and boards ahead of votes; if these discussions do not yield the required outcome, we use our vote with the aim of escalating our concerns.

Expanded fixed income engagement

While the use of proxy votes is not an option in fixed income portfolios, we believe we can further our impact investment goals by broadening our engagement. Examples of nontraditional engagement modes may include:

• Working with noncorporate issuers such as government agencies to drive improved data disclosure, thus enabling the identification of agency and securitized issuances that support our impact objectives
• Meeting with issuers and their representatives during the premarketing phase of labeled-bond deals to suggest ways of structuring robust deals and promote better standards in the sustainable-debt market

Impact measurement

Our engagements create a valuable feedback loop for delivering and measuring impact across our 11 themes. Specifically, active engagement helps us identify where we believe improvements can be made; encourage companies and issuers to measure their impact — both positive and negative; and report meaningful data.

An evolving approach

We continue to evolve and hone our approach to engagement. Inputs, including the current market environment, cross-theme impact challenges, or new developments within or across our impact themes, inform and shape our methods. While major areas of attention will evolve over time, meeting our three main objectives remains integral. In each engagement, we seek to gather valuable, additive insight into company and issuer strengths and weaknesses. This information helps confirm that our investments have the potential to generate strong long-term financial returns along with intended impact.