AMP Capital in March released its 2017 Corporate Governance Report, providing a comprehensive overview of its voting statistics for the proxy season, as well as updates on topical corporate governance issues.
The report provides an insight into AMP Capital’s approach to ‘environmental, social and governance’ (ESG) factors, as a critical part of investment decisions.
AMP Capital’s Kristen Le Mesurier, Senior ESG Analyst Investment Research, writes:
“As long-term investors, understanding the way the world is changing is crucial. At any point in time, a complex web of trends is shaping industries, creating headwinds and fuelling tailwinds. It is these trends that we study in detail. It is an integral part of our environmental, social and governance (ESG) research.”
From this complex web of trends AMP Capital has called out ESG investment themes that it expects to increase in prominence during 2017.
Leading the list is sugar and obesity concerns as a threat to earnings to exposed manufacturers and suppliers.
“A long-term trend toward health and wellness is already limiting the growth profile of companies manufacturing and selling products with high sugar content,” writes Le Mesurier.
According to AMP Capital, the threat to capital will ‘deepen materially’ if any of the following occur:
- Increased public concern from medial and public health organisations about sugar, and increased public awareness about the sugar content in food;
- Clear numbers on the cost of delivering health services to combat obesity, increasing the political will to impose sugar taxes and/or advertising restrictions, reducing intake; or
- Scientific evidence that sugar is the cause of specific diseases, potentially enabling large scale litigation.
The report argues that early signs show the first two are occurring, with sales of soft drink flat-lining and many jurisdictions introducing regulatory barriers such as sugar taxes or advertising restrictions.
While Australia is yet to impose a sugar tax, AMP Capital expects this debate to ‘step up a notch’ during 2017, potentially impacting earnings simply by increasing consumer awareness of the issue.
Other ESG trends to watch in 2017, according to the report, include:
- Technological disruption from self-driving cars; blockchain impacts on big business; and ‘online moving offline’ in a potential shift for existing online only delivery models;
- Climate change, with an ongoing focus on renewables
- CEO Remuneration and the ‘easy paymenet’ of executive bonuses
- Social licence to operate, with a focus on remuneration structures in financial services
- Supply chain scrutiny moving outside the garment sector
- Human resistance to antibiotics, with increased focus on removing antibiotics from food chains.
The Report also discusses the ESG focus that AMP Capital brings to its analysis, and its importance.
“The bulk of a company’s value is typically, and increasingly, driven by a range of intangible factors. These drivers can generally be split into two categories: sustainability drivers that relate to the entire industry (such as the relevant demographic, regulatory and technological change) and intangible drivers that focus on each company’s response,” says the report.
“While the specific sustainability drivers and their relative importance will tend to vary from industry to industry, there is a clear correlation between how effectively a company manages them and financial returns.”
Access the full report here.