ENVIRONMENTAL, SOCIAL, AND GOVERNANCE & ENGAGEMENT POLICY
At DSM, we believe that environmental, social, and governance (“ESG”) considerations and engagement play a critical role in active management and responsible investing. Superior ESG outcomes are an important priority for the firm, our employees, our clients and our community. DSM is committed to maintaining an investment approach that fully integrates ESG in order to potentially reduce risk and adverse outcomes while also identifying opportunities to enhance our client’s long-term returns.
Our ESG framework incorporates ethics and sustainability into our investment decision making. DSM has a proprietary scoring system for all investments in our portfolio’s. This system has quantitative and qualitative elements to reflect the severity, duration and remedy of ESG issues affecting the companies in which we invest.
ESG criteria include, but are not limited to, the following issues:
- Environmental – energy and climate change, biodiversity and land use, toxic emissions and waste, sustainability, supply chain management, etc.
- Social – human rights concerns, impact on local communities, child labor, workplace diversity, civil liberties, anticompetitive practices, marketing and advertising, privacy and data security, etc.
- Governance – bribery and fraud, controversial investments, executive compensation, management structures, board composition, executive behavior, etc.
DSM actively identifies, evaluates and manages ESG risks using proprietary research as well as third-party ESG information sources. In certain instances, ESG risks may be based on Company disclosures or third-party information sources that contain forward looking statements of intent and that are not necessarily fact-based or objectively measurable.
ESG considerations are fully integrated into DSM’s stock selection, monitoring, and selling processes. DSM assigns a proprietary ESG score to every company that it researches. Scores range from 0 to 10 (with 10 being the best), and DSM utilizes MSCI’s ESG Controversies and Ratings as a starting point to make adjustments to ESG scores across five key categories: Environment, Customers, Human Rights / Community, Labor Rights / Supply Chain, and Governance. These categories are then broken down further into over 20 subcategories. Each investment professional at DSM completes in-depth research on ESG issues impacting our holdings and then assigns scores using a consistent methodology. DSM stores all ESG communications and developments in centralized folders so that companies’ ESG histories and DSM’s ESG activities are available to research and other employees.
DSM evaluates ESG issues for individual companies and at the portfolio level. ESG scores are included in DSM’s internal research summaries and have an impact on DSM’s investment decisions and our overall assessment of a stock, which affect position sizing and selection. ESG considerations have both kept DSM from investing in certain companies and have led to selling portfolio holdings.
At a client’s request, DSM can apply exclusionary restrictions that accommodate responsible investment considerations and restrictions specified by a client that may generally prohibit the purchase of certain securities, either individually or by region, sector or both.
DSM’s Green Team
DSM has established a Green Team that is a cross functional team of senior professionals to oversee and coordinate ESG efforts.
The Green Team implements ESG best practices, establishes and oversees policies, leads firm-wide ESG initiatives, and promotes diversity and inclusion efforts.
DSM’s Green Team also provides and coordinates ESG training to other members of the firm.
ACTIVE OWNERSHIP – PROXY VOTING AND ENGAGEMENT
It is DSM’s policy that all proxies be voted solely in the best interests of the beneficial owners of the securities. DSM’s proxy voting policy lists positions DSM would typically take on certain proxy proposals. In addition, DSM has contracted with an independent third party, (currently, Institutional Shareholder Services, LLC) (the “Third-Party Administrator”), to provide issue analysis and vote recommendations with respect to proxy proposals. DSM utilizes the Third-Party Administrator’s Sustainability Policy. This policy is aligned with the Principles of Responsible Investment (PRI). The Third-Party Administrator receives proxies for all of DSM’s holdings and typically votes all proxies received, unless the voting policy recommendation favors withholding on a particular proposal. While it is DSM’s policy to follow the vote recommendations of the Third-Party Administrator, DSM retains the authority to vote differently than the recommendation on any proxy proposal.
DSM’s investment team is responsible for proactively engaging with companies to better understand a company’s approach to ESG and potentially influence ESG related corporate practices. Engagements may take the form of direct in-person meetings, calls, emails, or letters. The length of each engagement will vary based on the materiality of the issue, a company’s response, and how the information gathered is integrated into DSM’s investment process. DSM monitors its engagements on an ongoing basis to evaluate the actions, if any, taken by a company as well as what further actions may be necessary. If there are ESG violations by a company that are severe and not being adequately addressed, DSM could sell the position. However, DSM believes that we are in the best position to improve ESG outcomes when we are shareholders interacting with management and will first seek to engage with them to influence a positive resolution of the issues in question.
PRINCIPLES FOR RESPONSIBLE INVESTMENT
DSM became a signatory to the Principles for Responsible Investment (PRI) in October 2017. The PRI provides a set of investment principles and best practices designed to promote responsible investing. DSM utilizes the PRI’s Collaboration Platform, and DSM will become a signatory to relevant initiatives, such as the 2018 and 2021 Global Investor Statement to Governments on Climate Change, where appropriate. DSM completes annual transparency reports which can be provided upon request and are also available for download through the PRI website.
DSM’s signatory profile and transparency reports can be viewed at: https://www.unpri.org/signatories/dsm-capital- partners-llc/2163.article
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES
DSM became a supporter of the Task Force on Climate-related Financial Disclosures (TCFD) in April 2020. The TCFD sets out to develop effective climate related financial disclosures that consider the physical, liability and transition risks associated with climate change. These disclosures can then be used by companies to provide relevant climate related information to stakeholders. Additional information regarding the TCFD can be found at https://www.fsb- tcfd.org/