Kelly Vives, Allspring’s Chief Marketing and Communications Officer, discusses Allspring’s robust stewardship platform and engagement efforts with Jamie Newton, head of Global Fixed Income Research for Allspring. ESG (environmental, social, and governance) and climate transition are also topics of conversation.

 

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Kelly Vives: I’m Kelly Vives, Allspring’s chief marketing and communications officer, and you’re listening to On the Trading Desk®.

Today we’re here to discuss our stewardship efforts at Allspring, including our engagement with companies that the firm invests in. We’ll also talk a little bit about a very hot topic of climate transition.

Joining me is Jamie Newton, head of Global Fixed Income Research for Allspring, who will be sharing his insights on our stewardship platform broadly and how it’s reflective of our company mission to elevate investing to be worth more. Thank you for being here today, Jamie.

Jamie Newton: Thank you, Kelly. Happy to be here.

Kelly: So, Jamie, I’m going to go a little off script here to start off, but I wanted to open with a bit of a more personal question and ask you what stewardship means to you as part of your role.

Jamie: Yeah, thank you for that. So, stewardship fits very well in the way we think about research in general. We need to talk to management teams and it’s trying to influence the outcome. Additionally, we’ve aligned ourselves with the equity side of the equation. So that really fits well when we go into an engagement across the platform.

Kelly: Yup. So once an analyst, always an analyst, it sounds like.

Jamie: Yes, once an analyst, always an analyst.

Kelly: So, let’s talk about stewardship and engagement. They’re popular terms, right? Probably mean different things to different people. But maybe you can provide some thoughts and color around our approach at Allspring in both areas.

Jamie: Yes, for sure. The increase in popularity of the term stewardship and engagement reflects the evolving and broadening expectations of financial institutions, including asset managers. Following COP 26 last year, the Conference of Parties, there’s been a growing recognition that asset owners and managers are likely to be key facilitators in addressing some of the pressing real-world challenges we face.

This is a complex issue and it’s one that the U.K.’s Financial Reporting Council has tried to define as follows: Stewardship is the responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, environment, and society.

Now, that can be taken many different ways by many different individuals. But at Allspring, we really look at our remit as the following: First, as stewards for our clients’ assets, we view education to support our clients and prospects as an important building block. The knowledge spectrum is broad when it comes to stewardship and engagement with some of our clients having established their views and positions around ESG (environmental, social, and governance) and sustainability, while others are only just beginning their journey. At the same time, regulation and policy are evolving and politicians are inserting themselves into the discussion. So, views and opinions are subject to change and will do so over time.

Second, as the world is shifting, we need to ensure our investing talent is aware of these changes and the materiality. So internally-focused education is highly important. This transpires through topical research projects and working groups that cover key thematics, such as climate change and water scarcity, for instance. Water stress in the face of increasingly severe weather and conditions has been a focus for us over the past couple of years, specific to our water working group. In fact, we published a blog last week about it, if you’re interested.

Another would be the work that we’ve done on the Ukrainian conflict and the impact on climate transition to the energy and utility sectors in Europe. We want our investment teams to be aware of the developing situations and talking about these risks and opportunities.

A final point is engagement. Our engagement efforts have grown markedly over the last several years. We’ve significantly increased the number of engagements and touch points with management teams, having held more than 65 formal engagement meetings in the past year. Also of note, nearly 90% of those meetings cover topics around climate and/or emissions. It’s important. As long-term investors, though, we take a pragmatic and patient approach to our engagement framework, looking to build mutual understandings as we believe that we can more effectively drive results with those companies we invest.

Kelly: Thanks, Jamie. So, let’s dig in a little on how this works in practice. So, I assume the meetings you just talked about, not every one goes the same. But maybe you could share an example of how these meetings actually work with the companies when we’re engaging with them.

Jamie: Yeah, sure. And there are actually a couple of different ways that they transpire.

The first is we are part of an industry organization, Climate Change 100 Plus, where we’re really focused on leading an engagement with a large Latin American company that was one of the larger emitters. And the focus has really been to get them to disclose, get them to think about what they’re doing and how they’re doing it. And in fact, as part of that remit, a couple of other parties have joined that discussion and it’s been a very fruitful discussion over time. There’s been more disclosure by that entity. There’s been more forward-looking focus on emissions and otherwise. So that’s been a positive one.

Another one that was positive that came out of our own engagement efforts was one with another Latin American company. This was a large miner. And one might say, oh, it’s a mining company. They’re damaging the environment. But at the same time, in order for us to transition as a world, we need the minerals that are being mined by these mining companies. That’s how we support batteries. That’s how we support better transmission of electricity. So, we’d need these companies.

So, when we have these discussions, it’s not just trying to say you’re not doing the right things here, you’re not doing the right things there. It’s also to understand how they’re approaching their own businesses and how they’re approaching their own communities. Water, as I noted in my lead-in, is becoming something that’s more and more discussed. And the company then started volunteering how they’re replenishing water into their environment, how they’re thinking about the volumes that they take, how they clean it and make sure that it’s usable again, or maybe they use grey water, again, for their own practices and leaving clean water there.

So those discussions are very much educational for us to make sure we’re fully understanding. But at the same time, it allows a company to provide additional thoughts and understanding for others. Most of our engagements gather large groups of individuals from C-suites, heads of sustainability, heads of compensation, as more and more management teams have compensation tied to these types of metrics. And, so, it’s been a very interesting dynamic. And it’s been a very fruitful effort over time for us.

Kelly: Yeah, I love those examples. Thinking about partnership, how does this translate to how we work with clients and co-architect solutions many times alongside our clients that may have a particular ESG or financial outcome in mind?

Jamie: Yeah, that’s a great question, Kelly. In addition to the education, it is that partnership. We want to partner with our clients and prospects to assist them in achieving their financial and ESG or sustainability goals. Many of them are trying to figure out where they want to position themselves. And, so, we want to act as, again, an educator and an advocate for their views and opinions. We help guide our clients, but in the end, the style and focus of the investment is their decision. It’s not ours.

An example of this approach would be our climate transition product, where we work with a large European client to orient a product to achieve a decarbonization profile between now and 2050 while also incorporating select ESG parameters. This was in accordance with their views and opinions, which is great. And we had the data and resources to help support this. And the cooperations yielded a product that fits the client very well and is, in fact, also being well thought of by other prospects out there in the marketplace.

Kelly: Yeah, I think it’s such a good example. And something our CEO Joe Sullivan has said is we’re going to meet clients where they are. And as you mentioned earlier, they’re all at different points in the journey with ESG.

So, if you think about your role as head of Global Fixed Income Research and the process that you undertake, how do you and your team think about and assess ESG, or, more specifically, the “G” in ESG, as part of your regular credit research process?

Jamie: ESG has come a long way in the last 5 to 10 years, maybe the last 5 really in the U.S. But to us many times, it’s just a formalization of informal approaches we’ve taken for years and years.

When we think about “G,” or governance, it’s always been an important factor when assessing credit and equity potentials as sound management practices can mitigate risk while poor management can exacerbate it. It’s one of the reasons we, as an investor, want to meet, spend time with, and question management teams. It’s critical to the process and always has been. It’s also why we overweight governance on our own proprietary ESG assessment.

However, focus and data around environmental and social issues has exploded, helping us to analyze exposure to material sustainability considerations and accompanies management of that exposure more effectively. And I think it’s important to highlight that we focus on ESG factors that are materially significant to investors. Across sectors, we’ve identified broad sector-specific factors that influence business risk.

For utilities, a good example would be greenhouse gas emissions in energy and waste management, ecological impacts, and physical climate risk from an environmental perspective. From a social perspective, we consider consumer welfare and product safety, worker and operational safety, as well as ethics and regulatory influence.

We also take into account other factors, as well as how companies manage risk that will be company-specific and influence the enterprise value. This gives us two valuable perspectives. On one hand, it gives us an assessment of the potential impact on a company’s valuation from their ESG exposures that is integrated to our investment process. It’s part of the investment mosaic. On the other hand, it gives us the ability for us to tailor investment characteristics from a values-based perspective in partnership with our clients.

As previously mentioned, we find values-based factors tend to be personal or institutional, but we are able to tailor to that individual prospect’s or client’s needs. Now, I mentioned the explosion of data on “E” and “S” characteristics. We continue to actively speak with companies about their disclosure and transparency. We believe that consistent reported information will aid in correcting more aggressive action and policy. It’s not going to solve the issues, but improved disclosure will bring more scrutiny and hopefully change.

Kelly: Let’s pivot a little bit and talk about climate, obviously something very top of mind globally for all of us and, importantly, for our clients. So maybe you could share a little bit about how we’re approaching climate change at Allspring.

Jamie: We believe climate transition presents the broad global economy with an unprecedented challenge and at scale and reach. We take great care in considering how a company will perform in a transition to a net-zero world. The world needs to transition and this change will bring winners and losers. We seek to identify winners through this change. We are clearly not there yet from an emissions perspective, but we believe that companies that are large emitters today will lead the needed transition.

So, we don’t automatically exclude certain industries from our climate transition framework. This may be different from some of our peers, but we think it’s a more pragmatic approach that aims to facilitate the decarbonization of the real economy rather than just decarbonizing portfolios.

Kelly: So, with the time left, is there something or one thing you’d like to leave us with as it relates to stewardship and the period we believe we’re entering as we look ahead?

Jamie: Yeah, for sure. The world needs to transition. I said it several times during this discussion. And investors need reliable, consistent information. So, engagement is very important in that regard. We use this information to invest. The more information, the better the mosaic, the better the opportunity set that we can present to clients and prospects.

But we’ll follow the lead of our clients to help facilitate what their product set needs to look like. As we said earlier, it’s not about what we view or what we don’t view as to be the right way. It’s what our investors want their portfolio set to look like. So as Joe’s noted and you noted as part of this, it is really meeting our investors where they want to be and that’s what we’re trying to accomplish.

Kelly: Yeah, I think it goes along with that mission to elevate investing in the industry to be worth more. So, thanks, Jamie. Thanks for being here today and for sharing your insights.

Jamie: Thank you. It was much appreciated.

Kelly: That wraps up this episode of On the Trading Desk. If you would like to read more market insights and investment perspectives from Allspring Global Investments, you can find them at our firm’s website, allspringglobal.com.

To stay connected to On the Trading Desk and listen to past and future episodes of the program, you can subscribe to the podcast on Apple Podcasts, Spotify, or wherever you get your podcasts. Until next time, I’m Kelly Vives and thanks for listening.

 

Disclosure: Investment strategies that are not ESG-focused strategies may consider ESG related factors when evaluating a security for purchase but are not prohibited from purchasing or continuing to hold securities that do not meet specified ESG criteria.

 

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