We are a discretionary investment manager with a bottom-up investment process focused on delivering long-term results. Our approach is to fully integrate environmental, social and governance (ESG) issues into our research process, rather than treating them as the responsibility of a separate team.
Capital Group investment professionals consider ESG issues alongside other financial and economic indicators in their fundamental analysis of companies and their value. We are well placed to do this, as we have established a toolkit which integrates responsible investing into our entire investment process:
Capital has an extensive team of in-house equity and fixed income analysts who are responsible for evaluating all relevant factors, including ESG issues, as part of their company research into generating long-term value. Within Capital these individuals have the deepest knowledge and understanding of companies – and we believe they are best placed to make proxy voting and corporate action decisions on behalf of our clients.
Our intensive research approach naturally leads to our analysts developing long-term relationships with companies, providing us with access and credibility.
Our analysts and portfolio managers make thousands of company visits annually, and regularly meet with the management of companies. This enables them to engage and generate dialogue on any issues that could affect the company’s long term prospects. Where they identify an issue relevant to the long-term value of a company, our investment professionals (where appropriate, with the assistance of our governance team) will engage with management on that issue.
The response of the management to this questioning — their understanding of the issue and the steps they are taking to minimise any risks — forms an important part of our assessment of management quality, which itself is a key factor in our stock selection decisions. Alternatively, if we believe it is in the best financial interests of the client, we may sell the shares in a company rather than intervene.
Our guiding principle as an organisation is always to seek to act in the best long–term interests of — and seek value for — our clients. In line with this overarching principle we decide, on a case-by-case basis, whether our clients’ interests are best served by engaging with companies or by the sale of the shares of underperforming companies.
There have been occasions where we have considered intervention to be appropriate, where less public dialogue has failed to achieve a desired outcome and where we have determined the company’s actions could affect shareholder value. Where appropriate, we will consider the views of other investors in deciding when and how to engage with companies.
All proxy voting decisions are made in-house based on recommendations from our investment analysts. With their in-depth knowledge of companies, they factor in the circumstances which may apply to each vote rather than using a box-ticking approach or relying on external service providers. Voting decisions are overseen by regional proxy voting committees comprising portfolio managers, investment specialists, research analysts and legal counsel.
Our corporate governance team provides in depth experience and enables a consistent set of policies and procedures to be applied globally. This approach facilitates consistency but allows us to be responsive to regional differences.
We do not allow stock lending in our funds in part because the voting rights may be affected when stock is out on loan.
Our investment analysts also provide recommendations for voluntary corporate actions at the companies they cover. Decisions on corporate action events will be made by the portfolio managers and investment analysts responsible for shares held.
Our consistent process is supported by dedicated resources across our organisation.
Global network of analysts
Our global network of analysts and portfolio managers are the frontline resources in considering ESG issues as part of their overall company evaluation.
Corporate governance team
This specialist team supports Capital’s voting for our funds and segregated accounts. We aim to vote every share of every company we hold and have done so for many years. The team works with our portfolio managers and investment analysts to facilitate the voting decisionmaking process as well as enabling reporting of proxy voting decisions to clients. With dedicated associates in Los Angeles, London and Singapore, this team enables us to apply our governance principles consistently across all markets.
We offer clients quarterly ‘ESG in focus’ reports which provide insight into how we integrate ESG into our investment process, along with examples of engagement activity.
We also provide clients with quarterly proxy voting reports. These reports include details of shareholder meetings held during the period, relating to securities held by each client which are voted by Capital. The reports show, amongst other things, the way in which the votes have been cast, together with some explanation of voting decisions. Reports are also available which show only those votes that have been cast against management and the reasoning behind the decision, as well as statistical reports showing how all votes were cast for each type of proposal.
These reports seek to achieve a balance between providing our clients with transparency regarding our voting and engagement activities, and our policy of not publishing our research or voting records externally except as may be legally required
A number of our clients with segregated accounts have ethical or other reasons why they may not want to invest in securities of companies with certain business interests. The criteria for the exclusion of securities or sectors are chosen in discussion with our clients. Our systems offer the flexibility for segregated accounts to avoid excluded securities or sectors such as tobacco or alcohol.
UK Stewardship Code
We are supportive of the recent developments in corporate governance guidance in the UK and will continue to participate in consultations in this area. Our process, as described above, is consistent with the principles in the Financial Reporting Council (FRC) UK Stewardship Code. A full statement regarding our compliance with this code is provided on our website, Response to the FRC Stewardship Code.
We research companies and invest from a global perspective. As a result, although the FRC code applies to UK-listed companies, many of the themes are relevant for our investment approach in other markets.
Compliance with the UK Corporate Governance code
When voting at shareholder meetings of UK-listed companies, we may consider a range of factors in arriving at a decision on how to vote, including any information made available by our external service providers on a company’s compliance (or noncompliance) with the Corporate Governance code.
United Nations Principles for Responsible Investment (UNPRI)
Capital Group International, Inc. (CGII) is a signatory to the UN Principles for Responsible Investment (PRI).
The UN PRI comprises a set of Principles designed to provide a framework of best practices for responsible investment.
Capital has always invested for the long-term on behalf of our clients and as a matter of course has incorporated the impact of environmental, social and governance issues into the decision-making process where relevant. Our portfolio managers believe these factors can have an impact on the investment case for companies. We continue to look for opportunities to encourage transparency from companies in which we invest on behalf of our clients. We remain committed to encouraging good governance practices through our own activities and those of other organisations promoting these concepts.
Our companies participate in the following industry initiatives: