Global ESG Research Update — COVID-19 puts a spotlight on stakeholder capitalism

We touch on companies’ shifting stakeholder priorities amid the pandemic, and explain how we use our engagements to share best practices. We also provide an update on our ESG engagement and proxy voting activity in the quarter.

The views expressed are those of the authors at the time of writing. Individual teams may hold different views. The value of your investment may become worth more or less than at the time of original investment. For professional or institutional investors only.

The public health crisis caused by the coronavirus outbreak has pressured companies to examine and, in some cases, reprioritize stakeholder interests. Engaging with management and boards enables us to support thoughtful responses that may help a company survive the crisis, protect its reputation, and prepare for future shocks. Through our ongoing dialogue, we aim to share best practices with peer companies.

With unemployment surging in several countries, workers are in the headlines. While we appreciate the need to reduce payrolls to maintain solvency, we have a favorable view of companies that compensate employees where possible, either through uninterrupted compensation for furloughed workers or severance plans for those who are dismissed. We also commend management teams who reduce their own compensation.

Safety is another critical issue. Companies required to remain open must balance workforce and customer safety with the accessibility of essential products and services. Investments in technology should enable companies to operate safely while minimizing disruption from curtailed operating hours or limited store access. Businesses that allow customers to defer payments may be viewed more favorably than those that are inflexible or exploit surging demand by artificially raising prices.

Strong governance can also improve a company’s ability to navigate challenging periods. Boards with the appropriate mix of skillsets and whose directors have sufficient time to explore and approve solutions are more likely to be successful. Overboarding is a particular concern at a time when boards are convening often and on short notice.

Finally, capital allocation is under a microscope. Some companies remain committed to returning capital to shareholders through dividends and share repurchases, while others have dialed those back, either to respond to regulatory guidance, fortify their balance sheet, or enable opportunistic investments. We evaluate each company’s capital allocation decisions on a case-by-case basis, rather than favor a universal approach.

While each company’s response will be unique, we expect transparency and consistency of messaging and action in all cases. In our view, those qualities help a company engender trust with key stakeholders and improve the likelihood of emerging better positioned for long-term success.

1Q20 Firmwide proxy-voting results

Proxy voting can be a powerful tool that we leverage when engaging with company management teams. Our team examines each proxy proposal and votes against issues that we believe would have a negative effect on shareholder rights or on the current or future market value of the company’s securities. Figure 1 shows the breakdown of the past quarter’s global proxy voting.

Figure 1

Wellington Management’s 1Q20 proxy-voting results

1Q20 ESG engagement activity

In the first quarter of 2020, our team engaged with 132 portfolio companies in 27 countries (Figure 2) on ESG topics ranging from board composition and succession planning to carbon emissions and climate resiliency. See the list of our engagement discussions for the quarter below.

Figure 2

Company engagements by Wellington Management’s ESG Team in 1Q20

1Q20 ESG engagement activity by company

Communication services

BT Group PLC

United Internet AG

Walt Disney Co/The

Millicom Intl Cell

Take-Two Interactive


Activision Blizzard

Consumer discretionary

Compass Group PLC

Berkeley Group Hldgs

American Axl Mfg Hld

Lowe’s Companies

Consumer staples

Carrefour SA

Diageo PLC

Monster Beverage Co

Nestle SA

Nomad Foods Ltd

Sainsbury J PLC

Sanderson Farms Inc

General Mills Inc

Walmart Inc

Sysco Corp

Kroger Company



Equinor ASA

Royal Dutch Shell PL


New Zealand Refining

Enbridge Inc

Lundin Petroleum AB

Diamondback Energy I

TC Energy Corp

Kinder Morgan Inc

Schlumberger Ltd


Williams Cos Inc

Concho Resources Inc



Kosmos Energy Ltd



Genworth Mtge Ins

First Citizens

Assured Guaranty Ltd

ING Groep NV

First Midwest Bancrp

WR Berkley Corp

Equitable Holdings

Manulife Financial

TCF Financial Corp

UBS Group AG

Health care

Centene Corp

AMN Healthcare Svcs

Vertex Pharm

Apellis Pharmaceutic

CVS Health Corp

Teva Pharma Industr

UnitedHealth Group

Molina Healthcare In

Tricida Inc

Cigna Corp

Intuitive Surgical

Natus Medical Inc

Haemonetics Corp

Phreesia Inc

Alcon Inc

Danaher Corp

Hanger Inc

Allscripts Healthcare

Bluebird Bio Inc

Abbott Laboratories


Schneider Electric

Airbus SE

Dover Corp

Lyft Inc


John Bean Tech

Illinois Tool Works

Republic Svcs Inc

Middleby Corp

Deere & Co

Argan Inc


Rexel SA

JB Hunt Trnsprt Serv

BWX Technologies Inc

ACCO Brands Corp

Mitsubishi Corp


Greenbrier Cos Inc.

Information technology

Flex Ltd

Xerox Holdings Corp

Lumentum Holdings In

Five9 Inc

Salesforce Inc

Aspen Technology

Texas Instruments

Teradata Corp

Western Digital Corp

ServiceNow Inc

HP Inc

Guidewire Software I



Sasol Ltd

Linde PLC

FMC Corp

Kinross Gold Corp

Kaiser Aluminum Corp

Real estate

Douglas Emmett Inc


Outfront Media Inc

VICI Properties Inc

Shimao Property Hldg

Host Hotels & Resort

Oberoi Realty Ltd

Public Storage

NexPoint Residential


Engie SA

National Grid PLC

Iberdrola SA

Duke Energy Corp

Enel SpA

Avangrid Inc

E = environmental, S = social, and G = corporate governance discussions. The companies shown comprise a complete list of all engagement meetings in which Wellington Management’s ESG Team participated in 1Q20. These companies are not representative of all of the securities purchased, sold, or recommended for clients. It should not be assumed that an investment in the companies listed has or will be profitable. Actual holdings will vary for each client and there is no guarantee that a particular client’s account will hold any or all of the companies shown. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities.

1Q20 ESG engagement examples

Health care services company

We spoke with the CEO of this health care staffing and services company to discuss COVID-19 crisis management in the context of broader corporate culture and talent management initiatives.

Key discussion topics
Response to COVID-19 outbreak

Employee safety is a top priority. Using funds from the 2018 US tax reform to buy laptops for employees, the company transitioned to a fully work-from-home model, improving its business continuity position as well. The company is supporting clinician employees by offering screening before any new assignment, supplying masks, and encouraging physical and mental health through virtual programs. The company’s chief clinical officer, an infectious disease expert, has provided critical input as the company navigates the crisis.
Maintaining a strong corporate culture is a long-standing priority for the CEO. She credits employees’ positivity and connectedness with creating a sense of unity that will help the company survive the crisis and continue to provide quality service to customers.

Customer relationships have been improving in recent years, thanks to the company’s managed-service-provider model. It is offering free software to hospitals requiring additional tools for workforce management during the crisis and maintaining its usual pricing structure despite labor shortages. Recent acquisitions, including video interpretation software that facilitates remote diagnosis and access to specialty clinicians, provide complementary solutions to traditional access to care. The company expects its new video-based business to grow as customers appreciate and adopt this model, even after social-distancing restrictions are lifted.

In our view, the company is well positioned to weather the current public health crisis, given heightened demand for temporary health care staffing and technology that enables virtual access to health care. We are encouraged by the company’s collaborative approach to its offerings and pricing to meet client concerns. We believe this company has been proactive in strengthening its culture and customer relationships, and this discussion reinforced the ESG analyst’s view that it is a relative outperformer from an ESG perspective.

Beverage company

An ESG analyst and an equity analyst spoke with the COO/CFO of this beverage company to discuss supply-chain risks, sustainability disclosure, succession planning, and executive compensation.

Key discussion topics
Supply chain management
The company expressed optimism that it could avoid substantial supply chain disruptions caused by COVID-19. Since the outbreak, the company has been working to ensure sufficient supply of key materials. Even though some ingredients are sourced from manufacturers in Wuhan, China, and there are few alternative suppliers for those ingredients, the executives were confident that supply would be ample, given the timeline for resuming normal manufacturing activity and trade from that region.

Sustainability disclosure
The company is planning to publish an inaugural sustainability report in the next 12 to 18 months to improve its ESG profile. In collaboration with suppliers and other partners, it is gathering data on environmental key performance indicators such as water use and greenhouse gas emissions. In the report, the company also intends to emphasize its motivated, up-and-coming employees and collaborative work environment to disprove negative perceptions about its corporate culture. A few personnel issues garnered media attention last year, and the board commissioned an independent survey to ensure these were not pervasive.

Succession planning
The board is taking succession planning seriously, routinely discussing it among the independent directors. While neither the COO/CFO nor the CEO intends to leave his position soon, the company has recently been more transparent about mentioning internal candidates as potential successors. The company has also hired a search firm to recruit an external candidate to join the executive team, resulting in three competent potential candidates for whenever the need arises.

Executive compensation
We have repeatedly encouraged the company to add performance metrics to its executive incentive plan. After receiving substantial opposition to its say-on-pay proposal last year, the company has reiterated that it is in the process of implementing performance metrics into both short-term and long-term plans. The company reminded us that a formulaic approach to analyzing compensation penalizes it, due to its co-founder/co-leadership structure, and that its founders are major shareholders whose interests are aligned with other shareholders.

We are encouraged by the progress the company is making to evolve its ESG practices, and we believe the market overestimates the risks of its ESG profile. Nonetheless, we will continue to provide feedback to encourage better disclosure and ensure that the company follows through with commitments. The equity analyst also came away from this constructive engagement with a more positive view of this company. The encouraging ESG signs, in combination with a positive fundamental outlook, led the analyst to recommend the stock to portfolio managers.

Metals & mining company

An ESG analyst, joined by equity and credit analysts covering this South American mining company, hosted a meeting with management and board members, including the chair, to discuss safety and governance improvements made following a major safety failure at one of its mines.

Key discussion topics
Employee health and safety
A fatal accident took a significant financial toll on the company and local mining sector and called into question the company’s reputation and track record for protecting employees. In response, the company has made sweeping changes in the design, maintenance, risk management, and oversight of its sites. At its non-controlled joint-venture sites, the company is using its influence to enhance risk oversight to meet its new standards. It has also set the bar much higher when deciding whether to enter into a non-controlled venture.

A new role, head of Safety and Operational Excellence, will report to the CEO and the board, leading the company’s new strategic “Safety and Operational Excellence” pillar. Importantly, the incentive compensation for this role is not tied to production or earnings, but rather to ESG and risk management metrics. More broadly, long-term management compensation will also now be linked more directly to ESG metrics aligned with the company’s priorities. Outlined in the company’s “pact with society,” these changes include commitments to safety and operational excellence, climate change mitigation and adaptation, and development of sustainable construction.

Corporate culture
The board understands that only cultural transformation can produce lasting changes to safety procedures. Change has started from the top, including the revamped organizational structure and incentive compensation plan. The directors intend to encourage greater transparency within the organization and provide more disclosure to investors about the company’s safety progress.

Board composition
The board has enhanced its independent representation and plans additional changes following the expiration of an existing shareholder agreement. It has also added five directors with mining and operations-related experience over the last year, bringing the company in line with peers. Furthermore, the board’s newly formed, independent audit committee has assumed responsibilities like ensuring that the mechanisms for receiving whistleblower complaints guarantee confidentiality and anonymity. This committee is in addition to an existing fiscal council that is required by law.

In our view, mining companies should focus on employee safety and operational transparency. The ESG analyst came away with a more positive outlook, given the company’s improving governance and safety measures. Resolution of the ongoing investigation into its tragic safety failure should reduce uncertainty and allow the company to begin to rebuild its reputation with its stakeholders. In the meantime, the analysts continue to seek evidence of a cultural transformation to bolster the operational improvements.

Please see the important disclosure page for more information.


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