Agenda item
Presentation-Baillie Gifford on Performance, ESG and Sustainability by Baillie Gifford-20 Minutes
Minutes:
The Committee noted:
- Tower Hamlets is invested in two Baillie Gifford strategies: Global Alpha and Diversified Growth;
- Global Alpha: aims to outperform by 2-3% p.a;
- Baillie Gifford’s investment philosophy focuses on identifying stocks with long-term sustainable earnings growth;
- Diversified Growth has a dual objective: it aims to achieve a return of the UK Base rate+3.5% (p.a.) with volatility of less than 10%;
- There are no investment restrictions; the focus is on long-term capital growth with a low level of volatility;
- In comparing the relative carbon footprint and carbon intensity chart, Baillie Gifford pointed out that Information Technology companies do not typically come listed as high carbon emitters;
- In explaining the top largest percentage contributors to the carbon exposure in the portfolio, CRH-a building material company was highlighted as a company which has now put in place stringent carbon reduction policies;
- It was highlighted that the CEO of CRH is changing the cement industry initiative. Reduction in carbon emissions has been tied to company’s KPIs as well as top level senior management’s bonuses;
- It was also highlighted that over the past 5 years, the portfolio has consistently outperformed the benchmark on carbon footprint;
- A graph outlining the Diversified Growth performance showed that the fund has returned -4.8% and 4.6% over the 12 month and since inception periods respectively;
- The Global Alpha’s performance over the last 12 months was -3.9% whereas since inception, it had returned 15.5% (absolute performance);
- Baillie Gifford are looking at other holdings that are not just only reducing their Carbon Emissions but also working for solutions. The examples provided were: Spotify, TESLA Albemarle, BHP Billiton and Orica;
- Baillie Gifford highlighted that carbon reduction is a visionary
part of their investment process and the following actions have
been implemented:
- Internal portfolio carbon footprint analysis capabilities
- Engagement with Carbon intensive companies and non-disclosing companies.
- Employee-led Green Group for continual operational improvement
- Organisational carbon footprint measurement, management and offsetting.
- Baillie Gifford highlighted their actions in response to the Task Force on Climate-Related Financial Disclosures (“TFCD”) which the Financial Stability Board had established in 2015. The recommendations cover Governance, Strategy, Risk Management Metrics and Targets;
- Baillie Gifford is currently holding an internal review of the recommendations;
- There is a development of investment climate scenarios analysis currently in progress;
- Baillie Gifford has committed to respond publicly by 2020.
- Some
examples of industry collaboration include:
- Carbon Disclosure Project (“CPD”)
- UN Principles for Responsible Investments (“UNPRI”)
- Institutional Investor Group on Climate Change member.
- Baillie Gifford also emphasised that companies with significant exposure to carbon risk seldom meet their investment criteria;
- Risks include carbon pricing, environmental regulation, consumer sentiment, and disruption;
- As part of their commitment to better sustainability plans, their Governance and Sustainability team has been increased to 15, and further recruitment is still ongoing; and
- The team is diverse in experience and has a good gender balance.
Following concerns were raised by the Committee:
- What are the future climate concerns? E.g. (i) the chemicals in batteries are extremely toxic and batteries undergo a photochemical reaction as they decompose in landfills. This causes emissions of greenhouse gases; and (ii) there is a need to look at supply chains of businesses and how are they are improving efficiency;
- Why
has Global Alpha underperformed this year and what is the future
strategy?
- Over a 5-year period, the expectation is to outperform the benchmark as it is a highly active portfolio.
- There is a sizeable exposure to emerging markets.
- The market saw an indiscriminate sell off particularly in many of the online platforms which was completely at odds with the underlying fundamental numbers those businesses were returning.
- Does
Baillie Gifford meet with the Local Authority Pension Fund
Forum?
- Response: Whilst interactions with the LAPFF are through governance if there are any specific topics, companies or resolutions the LAPFF can apply direct pressure.
- Are
there any examples of stocks that Baillie Gifford sold?
- Grecco: Which was a higher contributor of Carbon Emissions given they were investing in diesel instead of cleaner energy technologies.
- Do you
have to put extra governance on Emerging markets?
- E.g. Alibaba: where Jack Ma stepped down - whether that was deliberate or pushed aside by the State. The manager’s spent time within China to determine the reason and discovered that it was a thoughtful action.
- There are differences in good governance practices between developed and emerging markets
- Appropriate governance structures differ from company to company.
- The diversity of the Governance and sustainability team does not have any representation from various ethnic/racial and religious groups.
- Baillie Gifford responded that people hired are on the basis of strict meritocracy but they would feedback the diversity concerns to their team.
Finally, it was noted that any other follow-up questions could be sent to the Baillie Gifford team via email.
Presenters Claire Phillips and Kieran Murray were thanked for their presentation.
The Chair requested for the reflections of the independent advisor Colin Robertson, who advised that, the Committee that they should judge Baillie Gifford on their long term performance and continue to monitor their progress. Baillie Gifford it was noted has proven to have a professional and highly competent investment team over the longer-term.
RESOLVED
To note the Presentation.