BALTIMORE, May 11, 2020 /PRNewswire/ -- In an era of
rising concerns about climate change, T. Rowe Price reported today that environmental,
social and governance (ESG) disclosure issues became the number one
topic in its voluminous engagements with the managements of
companies around the world in 2019. Looking to the future,
the $1.01
trillion1 global asset manager said that the
rising risks associated with climate change will impact virtually
its entire universe of portfolio holdings to varying degrees.
Therefore, climate change alongside other ESG factors is being
increasingly factored into analysts' evaluation of company
fundamentals.
According to the firm's second annual ESG Report, ESG is being
ingrained into its investment processes, impacting how it interacts
with thousands of company managements in its portfolios and how it
casts its proxy votes, and influencing its advocacy efforts to
protect shareholder rights.
The report also presaged the profound changes in corporate
governance that might arise in the aftermath of the COVID-19
pandemic.
"It is too early to draw conclusions about the long-term effect
this virus will have on companies and economies, but what is clear
at this stage is that the culture and values of corporate issuers
around the world are being tested like never before," Donna Anderson, Head of Corporate Governance,
said in the report.
"Companies' previous statements about their management of human
capital, health and safety, community involvement, and the overall
importance of stakeholders to their businesses will be assessed in
a whole new context. We predict that these topics will become
central to the engagement that takes place between investors and
corporations."
The firm's fundamental investment process is supported by a
proprietary Responsible Investing Indicator Model (RIIM) that
proactively assesses responsible investing profiles of more than
14,000 corporate and sovereign entities, globally. The RIIM
analysis spans more than 20 indicators,2 such as supply
chain (environment), employee treatment, and business ethics to
evaluate companies' ESG risks and positive characteristics. In
addition, applying RIIM portfolio analysis can help quantify the
amount of risk pertaining to ESG issues across a portfolio
manager's whole portfolio and compared to the benchmark.
One example of ESG integration in action is the assessment of
AIA Group, a pan-Asian insurance provider. Analyst Zenon Voyiatzis notes that investors continue to
underestimate the durability and resilience of the growth achieved
by AIA Group. However, the Responsible Investing team's analysis
confirmed AIA's robust environmental management program with a
particular emphasis on climate change factors. The company
incorporates ESG factors such as water scarcity, climate change,
environmental regulations, and labor issues, across all asset
classes in which it invests, thereby reducing exposure to potential
downside risks. This input provided further support for our overall
investment analysis3.
Alongside RIIM and its fundamental research platform, T.
Rowe Price implements its
investment-driven engagement program to ascertain how its investee
companies are building environmental sustainability into their
long-term strategic planning, and to guide them towards industry
best practice. This includes the firm's advocacy for aligning ESG
disclosure with global frameworks that emphasize financial
materiality, namely the Sustainability Accounting Standards Board
(SASB) and Task Force on Climate-Related Financial Disclosure
(TCFD).
Maria Elena Drew, Director of
Research, Responsible Investing said, "Our clients are
increasingly concerned with understanding environmental-related
risks within their portfolios. For us, environmental data is a key
component within our responsible investing indicator model, which
integrates into our broader investment process. As part of our
commitment, we've been active in using our scale and influence to
drive positive change. In fact, ESG disclosure was our #1
engagement topic of 2019, with environmental disclosure a feature
of 38% of our ESG engagements.
"Our engagement activities have sought to nurture steady
improvements in ESG disclosure by helping companies understand how
we use ESG data in their investment analysis and decision making,
how our clients process ESG data to evaluate their aggregated
portfolios, and how they should report environmental data –as there
is no uniformly adopted standard."
T. Rowe Price uses its proxy
voting power in a way that complements the other aspects of the
firm's relationship with investee companies, including engagement,
investment diligence, and investment decision making. T.
Rowe Price believes the scale and
scope of its business puts it in a powerful position compared with
many of its peers when carrying out ESG engagements with
companies.
While the firm consistently supports effective, well-targeted
proposals that reflect its concerns as an investor, we believe it
is debatable whether many shareholder resolutions represent a
meaningful solution to various ESG-related challenges. In almost
every instance, shareholder proposals are non-binding votes that
are opposed by the company's management and board. Based on the
firm's experience, one-on-one engagement with companies produces
better outcomes than shareholder resolutions. It's also
important to note that out of 64,249 proposals that T. Rowe Price cast a vote on globally in 2019, only
0.5% were dedicated to environmental and social issues.
In 2019, T. Rowe Price continued
to evolve its stewardship program:
- The number of meetings with management exceeded
11,000 (with 656 classified as ESG engagements);
- Cast proxy votes on 64,249 proposals at 6,350 meetings globally
– representing 99.2% of all meetings held.
ABOUT T. ROWE
PRICE
Founded in 1937, Baltimore-based T. Rowe Price Group, Inc., is
a global investment management organization with $1.01 trillion in assets under management as of
March 31, 2020. The organization
provides a broad array of commingled funds, subadvisory services,
separate account management, and related services for advisors,
institutions, financial intermediaries, and retirement plan
sponsors. The company also offers sophisticated investment planning
and guidance tools. T. Rowe Price's
disciplined, risk-aware investment approach focuses on
diversification, style consistency, and fundamental research. For
more information, visit troweprice.com.
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T. Rowe Price Associates, Inc.
1 Firmwide assets under management include assets
managed by T. Rowe Price Associates, Inc. and its investment
advisory affiliates as of March 31,
2020
2 A complete list of RIIM risk indicators is available
on pages 8-9 of T. Rowe Price ESG Annual Report
3 The specific securities identified and described
do not represent all of the securities purchased, sold, or
recommended by T. Rowe Price, and no
assumptions should be made that the securities identified and
discussed were or will be profitable.
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