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Over the course of VanEck’s nearly 70-year history, environmental, social and governance (“ESG”) factors have played a crucial role in the growth of the firm from both a product development and investment process perspective.
Tom Butcher, VanEck’s Director of ESG, recently sat down with Jan van Eck to discuss the firm’s perspective on, and commitment to, ESG.
Well, first, let’s talk a little about our beginning. And the reason for doing this is because there is a parallel between our history and our role in today’s asset management business.
From an initial investment of around $100,000 of capital in August 1955, we now manage approximately $80 billion around the world and across a range of assets—both actively and passively. We believe that, much in the same way that back then, my father, John van Eck, assumed the responsibility of providing opportunities to U.S. investors to participate in the growth of a regenerating world, we, too, show responsibility towards our investors by providing them with opportunities they might not otherwise have to help foster change and improvement.
As our assets have grown, so, too, have our responsibilities: to our investors, the companies in which we invest (and their stakeholders) and both the community that is VanEck, as an organization, and the wider sense of the word. Going back to our start, the one ideal that was a key thesis then, and still applies, is that good governance is crucial when building an investment case. Well-governed companies are expected to have high environmental and social standards in addition to being able to demonstrate superior financial returns.
In addition to governance, I would say that the environment has been of increasing concern to us and our investors. To that end, we have launched several environmentally themed funds over the past decade.
I think it’s also fair to say that our ability to implement ESG in the relevant investment processes is limited by the information that companies give us. We do, though, receive far more information today than that received only two years ago. Our research priorities now center on developing our own metrics when it comes to environmental impact. We call it “CLAW”—climate, land, air and water: We don’t limit our analysis to CO2 emissions.
In addition, we are researching the role of agriculture, which necessarily means also discussing the critical influence of water and land use in overall climate change and environmental sustainability. This approach obviously also touches on how environmental mandates overlap with social sustainable development goals. Finally, we are looking at voluntary emissions credits and their role in getting companies to “carbon neutral.”
We recognize that investors today have strong viewpoints surrounding ESG and it’s our duty to keep these in mind. We, therefore, try to align firm and client interests when making investment decisions. Let’s also note that companies exhibiting strong ESG practices may also be more competitive and successful over the medium to long term, which again is a benefit to our clients.
Therefore, it’s incumbent upon us, as a firm, not only to encourage change that can enhance, protect and provide opportunities for shareholders to meet their investment objectives, but also to seek to mitigate the associated risks, including those related to ESG.
As part of this commitment, ESG factors are incorporated, when possible, into our investment analysis and engagement policies for both our active and passive solutions.
We take active ownership seriously. Across our strategies, we’re often large shareholders and, therefore, positioned favorably not only to “do our part” as such, but also to discharge the duties we owe to investors. We will actively engage directly with investee companies on ranges of issues, including those related to ESG, both when we deem it necessary and, at times, when asked to do so by the companies themselves. There’s a level of experience and expertise among our investment teams that comes with longevity and we have always taken pride in being a firm where exchanges between our people and investee companies are transparent and open.
We’ve discussed with company boards and senior management subjects ranging from carbon dioxide and greenhouse gas emissions and energy efficiency, to acceptable levels of executive compensation (and incentivization), through gender representation on boards, to (an example from the emerging markets) how to both protect and be seen to protect the interests of minority shareholders.
Probably the most significant difference is the increased level of human interaction between VanEck’s active investment teams and the companies in which they invest when it comes to matters related to ESG. We are more likely to engage with portfolio companies in our active strategies.
For many companies, the depth and breadth of their understanding of what investors need from them vis-à-vis ESG data, etc. continues to evolve. We believe that, in order to facilitate this evolution, our relationships with companies around ESG need to be active and collaborative, rather than simply reactive. We deem this to be one of our responsibilities as an investor and stakeholder.
The other significant difference is increasing collaboration with other stakeholders around matters relating to both responsible investment in companies and their approaches to ESG. They are areas in which positive actions can be effective.
The first thing that comes to mind is that we are a signatory to the Principles for Responsible Investment (“PRI”). This means that, as a firm we formally agree to incorporate ESG factors and analysis into our investment processes.
VanEck has a formal Engagement Policy and Responsible Investing Policy (“RI Policy”) which outlines how we interact with companies and our philosophy regarding ESG broadly, among other things. These policies were discussed by, and created with input from, an internal ESG Committee, with representation across departments and across our global offices. In addition, we have a newly-constituted ESG Working Group to oversee “all things” ESG-, sustainability- and RI-related.
From an investment perspective, an issue that we think is relevant to both the organization and clients is the energy transition and carbon reduction, together with how to assess both. Because of the asset classes with which we’re associated, the importance of both issues is major and we feel they are areas where we can contribute to change.
For many years, we’ve had not only one of the largest real assets (including gold) investment teams on Wall Street, but also one with a considerable breadth and depth of experience. Our active investment team members have focused on evaluating how energy transition and decarbonization affect their investment universe—both positively and negatively. And this is applicable across natural resources as well as emerging markets, equities and fixed income. One notable result of this has been a pivot away from investment in traditional, fossil fuel, energy companies and toward those involved in alternative energies and other areas, such as agriculture technologies, for example.
Over the years we’ve launched a number of ESG-related products globally and expect to bring new solutions in this area to market over the next several years with a focus on some of the areas we’re most familiar with, from natural resources to municipal bonds.
Internally, we have established a working group focused on diversity, equity and inclusion within the organization. We also plan to enhance education and training around ESG/responsible investment across the firm.
Some other initiatives we have planned include developing the best ways to inform stakeholders, not only of our proxy voting decisions, but also the reasoning underlying them. We also want to be more transparent regarding our engagement activities—with whom the investment teams have engaged and what the outcomes have been.
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