RWE: Pivot to renewable energy
The reinvention of a top carbon emitter.
We believe that environmental risk, including climate risk, is a material consideration for companies that tend to have large environmental footprints. Traditionally, these firms operate in the industrial, energy, natural resources, and manufacturing industries. Key issues include:
Of course, environmental considerations vary widely by sector, investment strategy, and client mandate. To date we have observed that the average technology company faces far fewer environmental challenges than does a long-established industrial company. And while global environmental laws and standards continue to expand, industrial companies are not necessarily without investment merit. We believe it is possible to analyze these firms relative to their industry peer group to understand their achievements and progress in broad context.
As employers and providers of products and services, companies perform an essential social function. We believe a company’s ability to maintain trust and strong relationships with its employees and customers is essential to its longevity and ability to create value. Social considerations include:
While labor relations are important across all sectors, other aspects of the social dimension vary markedly by sector and region. For example, cyber security and respect for data privacy can impact the reputation and brand of a company more than ever before, especially among data-rich technology companies. By evaluating a company’s social orientation in a thoughtful and holistic way, we believe we can ascribe the appropriate level of risk associated with these complex and multi-faceted issues.
We believe that good corporate governance is the most important driver of the long-term success of a company. With proper oversight, environmental and social concerns should be minimal and dealt with quickly and effectively. Governance issues that we often encounter include:
Through our fundamental security selection process, we seek to determine if current management will be a good steward of investors’ capital. Understanding a company’s governance and oversight structures is a key part of this process. We do not impose a one-size-fits-all approach when evaluating these frameworks as there is no reason to believe that certain board or management structures or voting structures are inherently better or worse than others. Instead we prefer to take an evidence-based approach, doing the hard analytical work of exploring each individual scenario to understand its history as well as its prospective impact.
Our research leads us to a broad spectrum of companies across different sectors and countries. Each investment idea has a unique set of considerations and the role of environmental, social, and governance factors can vary markedly from one situation to another. There are times when these considerations will be material to a buy or sell decision as well as in calibrating a portfolio weight. There will also be instances when these factors are practically negligible in an investment decision. We utilize our fundamental, bottom-up research to identify the relevance and level of materiality of these issues.
In the examples below we illustrate how we have engaged ESG factors when we determine that they are relevant to our thesis. In each instance we identify the issues and the actions that we took as a result of our proprietary research, analysis, and external engagement.
The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients, and it should not be assumed that investments in the securities identified and discussed were or will be profitable. The securities were selected as we believe they aptly illustrate how Jennison integrates ESG considerations as part of our investment process.