Why corporate engagement?
Active shareholder engagement aims to promote long-term success and sustainability. In this sense, effective engagement is about creating an alignment of interests between, and to the benefit of, companies and their investors. DNR Capital have a long term investment horizon, take a long term view on ESG risk factors and engage with companies for the long term benefit of our clients. Our often long term relationships with the Board and management of portfolio companies generally facilitates a high quality of corporate engagement.
As supported by research conducted by the PRI, corporate engagement creates shareholder value in these important ways:
- Engagement between companies and investors not only enhances the understanding of ESG issues but the company more broadly, and is a further tool to assess the quality of a company, promoting improved investment decision-making,
- ESG engagement raises awareness with senior management and board level, influencing changed company behaviour, and
- engagement on ESG factors can result in deeper relationships between investors and portfolio companies, emphasizing the importance of better ESG disclosure for shareholders.
Our approach to corporate engagement
DNR Capital’s approach to corporate engagement is consistent with our ESG integration and engagement strategy, as outlined in our ESG Policy. Corporate engagement is an important component of the investment decision-making and portfolio management process.
DNR Capital meets with portfolio companies after their interim and full year results, and often with the Chairman before the company AGM. We also generally meet with the management of prospective companies before an investment is made. These meetings provide a forum to discuss corporate governance, strategy and capital management and ESG governance, performance and disclosure of the company with senior management.
In addition to these meetings, DNR Capital conduct a program of dedicated ESG meetings which focus on the key issues of climate change, modern slavery, plastics and waste, conduct and culture, social licence, cybersecurity and corporate and ESG governance, amongst other issues. We engage with portfolio companies with exposure to these risks, to understand their engagement, risk management strategies and to advocate for best practice.
These issues are prioritised with consideration to the following factors:
- materiality of ESG factors on financial and/or operational performance;
- the systematic impact of the issue, i.e. climate change;
- the ESG score of the company;
- the adequacy of public disclosure on ESG factors / performance;
- active weight of holding and other portfolio construction factors;
- diversity of ESG factors across engagement program; and
- representation of companies held in each investment strategy.
Where appropriate, we also consult clients and their ESG corporate engagement priorities.
DNR Capital considers the following to be main objectives of its engagement process:
- developing strong and long term company relationships;
- gaining information and insights to assist DNR Capital in investment decision-making;
- ESG governance including remuneration alignment with achievement of ESG related outcomes, adequacy of ESG experience at the Board level, ESG strategy and integration in capital allocation decisions;
- building confidence in an entity’s Board governance and oversight;
- understanding of executive remuneration, Board composition, and other company AGM proposals; and
- advocating companies to adopt best practice in managing and disclosing ESG issues such as climate change, modern slavery and conduct and culture, amongst others.
Corporate engagement is primarily conducted through company meetings, either in person or remotely, but can also be conducted through other mediums, including:
- written communication with the board or senior management and
- company site visits.
Whilst DNR Capital do not directly engage with public policy makers, we are members of the industry association Responsible Investment Association Australasia (RIAA) that conduct policy advocacy work on our behalf. DNR Capital review RIAA’s Policy Platform to ensure that it is aligned with DNR Capital’s commitment to the principles of PRI.
Climate change corporate engagement
Given the systematic impact of climate change risk, climate change is a core tenant of DNR Capital’s corporate engagement program. Our approach to climate change engagement is consistent with our approach to corporate engagement more generally, with a focus on the following climate specific factors, where relevant:
- climate governance including: remuneration alignment with achievement of climate related outcomes, adequacy of climate experience at the Board level, climate strategy and integration of climate in capital allocation decisions, capex budget;
- climate disclosure including: TCFD compliance, climate scenario analysis and granularity of climate scenario analysis at asset level, signpost analysis and view on current transition trajectory;
- net zero commitment including: Science Based Targets, ambition of medium and long term targets, inclusion of scope 1, 2 and 3 emissions, strategy, plan and resourcing to achieve targets, reliance on offsets to achieve targets; and
- physical climate including: risk assessment, asset resilience and capex budget.
Feedback, review and reporting
DNR Capital’s company engagement initiatives are conducted by our investment analysts, in conjunction with portfolio managers and our ESG investment analyst. As such, the insight gained from each initiative is incorporated into the research and investment decision-making process including our assessment of the quality attributes of the company. Detailed company meeting notes are kept and the company is monitored by the investment team as part of the ongoing review process.
Further, DNR Capital monitor progress against company undertakings and have an escalation strategy where we are unsatisfied with their progress. This may involve:
- seeking engagement with other company representatives;
- using alternative communication mediums;
- divesting or implementing an exit plan;
- using proxy voting to vote against the re-election of a Director or remuneration report; and
- where appropriate, collaborating with other shareholders.
DNR Capital will report on its engagement activities to stakeholders through the annual Stewardship Report, client reporting, marketing presentations and bespoke client requests.
Roles and responsibilities
The Board and executive level management have formal oversight over and accountability for responsible investment at DNR Capital. Responsible investment outcomes will be reflected in executive remuneration.
Socially Responsible Investment (SRI) Committee
DNR Capital’s SRI committee was established in 2010 and oversees the implementation of our ESG policies and integration of ESG into investment decision-making.
DNR Capital’s ESG integration and engagement initiatives are conducted by the investments team. As such, the insight gained from the process is incorporated into the research and investment decision-making process. Responsible investment outcomes are reflected in remuneration.