investment viewpoints
FRC Stewardship Code: LOIM awarded signatory status for a second year
For the second consecutive year, Lombard Odier Investment Managers has achieved signatory status to the Financial Reporting Council’s (FRC’s) outcomes-based UK Stewardship Code for our 2021 activity.
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Stewardship convictions
Stewardship provides a vital means of protecting and enhancing the long-term value of the assets entrusted to us by our clients, while also helping to achieve measurable impact beyond financial returns.
Through engagement, voting and collaborative efforts with like-minded investors, we seek to help companies align their businesses with sustainable transition pathways – which are net-zero, nature-positive and fair – while promoting best-in-class business practices and managing any controversies that may arise. This approach enabled us to be part of the first cohort of investors awarded signatory status to the UK Stewardship Code for the 2020 reporting period, after it was strengthened to focus on outcomes.
We address systemic, sustainability-related challenges as well as those that are the most financially material to a company’s sector and industry. Our stewardship framework is anchored in our conviction that the global economy is transitioning from a WILD model that is wasteful, idle, lopsided and dirty to one that is CLIC®: circular, lean, inclusive and clean. In essence, the CLIC® economy puts the world on a pathway to a zero-emissions, zero-waste economy whose footprint is within nature’s regenerative capacity – all while driving advancements for our growing population.
At LOIM, we believe the CLIC® transition is one of the most important drivers of future return and risk, and our investment strategies and stewardship approach are geared towards leveraging the value-creation opportunities that it generates.
Driven by CLIC®
CLIC® is our proprietary, science-based approach to analysing material forward-looking risks and opportunities created by the transition to a sustainable economy. As such, the framework underpins our investment and stewardship activity.
This year, we have recognised that the transition will require profound changes to make three major systems – energy, materials and nature – sustainable. These shifts will affect 95% of our investment universe and be enabled by the pricing of externalities, such as the development of carbon markets. In 2022, this finding deepened our conviction in the CLIC® transition and is informing our investment and stewardship activities.
With the exception of the third principle in the FRC Stewardship Code, which focuses on internal processes for managing conflicts of interest, the CLIC® framework is embodied in our 2021 stewardship reporting on all principles assessed by the FRC (see figure 1).
FIG 1. CLIC® is evident throughout our stewardship activities
| UK Stewardship Code principle | CLIC® materiality |
|---|---|
| Our investment beliefs enshrine CLIC® |
| In our governance structures and processes, and the appropriate resourcing of the teams involved in stewardship |
| 4. Promoting well-functioning markets | We see CLIC® as a key driver of well-functioning markets and the financial system |
| 5. Review and assurance | CLIC® is incorporated into our suite of stewardship policies and review processes |
| 6. Client and beneficiary needs | CLIC® serves as a both a trigger for client communication and as platform to engage with clients on how their own views and philosophies are aligned with CLIC® |
| 7. Stewardship, investment and ESG integration | CLIC® plays a key role in our integration approach, helping us define and deliver on integration priorities |
| 8. Monitoring managers and service providers | CLIC® highlights the need for optimal data, and for new sources of data to address emerging sustainability issues |
| 9. Engagement 10. Collaboration 11. Escalation | In engagements, we use CLIC® to identify and address sustainability challenges |
| 12. Exercising rights and responsibilities | In our voting, CLIC® considerations help us hold companies accountable on their progress in transitioning to sustainable business models |
Source: LOIM as at 31 December 2021.
Engagement in action
Our engagements in 2021 focused on key CLIC® themes – including circularity, climate and nature – and perennial focus areas like governance, remuneration and disclosure. Such activity is evident in our recent case studies on engaging for decarbonisation in the aviation and energy sectors, and in the 10 we detailed in our report to the FRC, which are firmly aligned with principles set out in the Stewardship Code. Figure 2 provides an overview of these case studies – to read them, please download our report using the download button provided.
FIG 2. An overview of LOIM engagement case studies from 2021
Source: LOIM as at 31 December 2021.
As signatories to the UK Stewardship Code and investors focused on the CLIC® transition, we are committed to continue investing and engaging with conviction in the importance of sustainability, strong governance and transparent reporting to long-term returns.
To read our report to the FRC, please use the download button provided.
To learn more about our approach to stewardship, click here.
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