How to use a stakeholder lens to channel ESG investing

Mackenzie's new Betterworld team uses the 4 A's of avoid, assess, analyze, and advocate

How to use a stakeholder lens to channel ESG investing

Mackenzie Investments’ new Betterworld team is looking at environmental, social, and governance (ESG) investing through a new stakeholder lens to capitalize on growing ESG interest – and also move the bar to make companies more sustainable.

“What attracted me to building the Betterworld Team with Mackenzie is the commitment that it’s making to sustainability. So, we’ve built a platform that offers investors a broad spectrum of sustainable alternatives,” Andrew Simpson, portfolio manager and head of Mackenzie Investments’ Better World investment team, said in a recent WP Talk podcast, noting that Mackenzie has a Sustainability Centre of Excellence that supports the team.

“The culture of sustainability is pretty well entrenched there. The organization is continuing along this process of integrating responsible practices across all of its mandates, whether they’re ESG focused, like ours, or traditional boutiques.”

The Betterworld team’s mission is to enable investors to meet their financial objectives while aligning their investment to a sustainable future. It does that by managing Canadian and global mandates prioritizing and investing in companies with progressive ESG practices and behaviours.

“The team is really guided by the belief that the way we treat the planet and the communities we operate in will determine their future profitability,” said Simpson. “So, for us to  uncover sustainability leaders in our investment process, we lead it with ESG and live analysis. It’s not a bolt-on step for us. It’s a fully integrated aspect of our security selection, and that’s a key differentiator for the team out there in the industry.”

Simpson said the Betterworld approach applies a stakeholder lens to differentiate companies who demonstrate progressive ESG practices and behaviours. It identifies six primary stakeholders with a vested interest in how the companies perform to assess the communities they operate in and the customers they serve. Those can include employees, suppliers, and even the environment, and not just the shareholders

“If a company can successfully balance the interest of stakeholders, it can better capture opportunity to build competitive advantage and grow economic value,” he said.

Betterworld has a four-stage process to generate impact: avoid, assess, analyze, and advocate. It avoids controversial companies, and then assesses their ability to create positive impact through their products and services. It analyses their financial metric to validate core growth drivers and identify sustainability leaders, and then advocates through shareholder engagement by dialoguing with the management teams of the companies that it owns to manage ESG risks and deliver positive impact to their stakeholders.

“If you look at risk and opportunity, and you have that dialogue with companies, I think we have an opportunity to improve things overall,” he said. “What we want to do here is analyze ESG factors to reduce portfolio downside. If our research uncovers any red flags about a company, we can then meet as a team and collaborate to either avoid investing in that company or use it as an opportunity to engage with them to help them course-correct and to change this risk into an opportunity.

“You can’t just rely on a third party score; you have to do the research yourself.”

Simpson goes on to spell out the three key principles of the Betterworld’s engagement strategy as well as what can be done for greenwashing, and what’s next in the evolution of ESG investing.  You can listen to our full conversation with him on WP Talk podcast.