CADMOS PEACE INVESTMENT FUND
FINANCIAL & IMPACT REPORT
2018-2019
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In 1996 David de Pury, Guillaume Pictet, Henri Turrettini joined forces to create their company, de Pury Pictet Turrettini
& Cie S.A. (PPT). The firm provides both wealth management and asset management services to offer our high value-
added strategic advice based on our advanced skills and experience to our private and institutional clients.
PPT has always demonstrated a great capacity for innovation, notably as a pioneer of responsible investment. It is the
owner of the Buy and Care® strategy, manager of the Cadmos European Engagement Fund, Cadmos Balanced CHF
and Cadmos Peace Investment Fund and advisor to the Cadmos Emerging Markets Engagement Fund and the Cadmos
Swiss Engagement Fund. PPT ensures the funds’ consistency, transparency and distribution. It is a signatory to the
United Nations-supported Principles for Responsible Investment (PRI) since 2008.
KEY ENGAGEMENT IMPACTS AND PROGRESS
SINCE 2006, CADMOS REPRESENTS MORE THAN:
190 POSITIVE
IMPACTS
520 ENGAGEMENT
MEETINGS
900 ESG COMPANY ASSESSMENTS
14’000 ITEMS VOTED
180 INVESTMENTS
FOREWORD
The Cadmos Peace Investment Fund was launched in January 2018 in cooperation with the PeaceNexus Foundation, which provided the necessary seed capital. This is to our knowledge the first Fund designed to directly address UN Sustainable Development Goal 16, defined as “To promote peaceful and inclusive societies for sustainable development, provide access to justice for
all and build effective, accountable and inclusive institutions at all levels”. Currently, investors and private
companies struggle to identify how to increase their contribution to peace and SDG-16. The Cadmos Peace
Investment Fund is a response to this challenge. It provides a solution for
investors seeking both market or above market financial performance and
positive impacts on peace and stability. Since 2006, the Cadmos Funds have succeeded in simultaneously delivering
financial performance and tangible impacts. It has done so by engaging
with our portfolio companies and helping them to integrate their most
material environmental, social and governance (ESG) or sustainability topics into their corporate strategy.
The Cadmos Peace Investment Funds’ engagement goes well beyond a simple dialogue with the companies’ management. Each year we provide them with a thorough assessment of their key material sustainability and peacebuilding topics followed by a feed-back on the identified gaps. This
report confirms that companies are willing to implement our subsequent progress recommendations on improved sustainability integration and on strengthening their peace promoting business practices. The PeaceNexus Foundation is an operational foundation that engages with our investee companies to improve social impacts in conflict-affected or fragile contexts. Its proprietary Peacebuilding Business Index (PBBI) ranks the 300 economically most impactful companies in fragile states based on their contribution to peace and SDG 16.
PeaceNexus and our network of impact specialists can bring a wealth of expertise and knowledge to companies. They react positively to this unique expertise-based engagement which is always linked to the companies’ core business model. The Cadmos Peace Investment Fund invests only in
profitable companies that tend to have a net positive peacebuilding impact according to the PBBI. We believe that portfolio companies that are adapted to performing responsibly in the complex environment of conflict-prone countries are more likely to be resistant to shocks and outperform their peers. But Cadmos goes one step further, by making peacebuilding expertise available to portfolio companies. Our experts provide support on anti-corruption policies
and procedures, participation in multi-stakeholder peacebuilding relevant initiatives, conflict-sensitive human resource or supply chain management, product stewardship in fragile countries, oversight of private security personnel, etc. Our commitment to high-quality listed impact investing has been acknowledged by the UN Pinciples for Responsible Investing (PRI). The Cadmos Peace Investment Fund was shortlisted as the best “Active
Ownership Project of the Year”. The first part of this report provides a
complete overview of the Cadmos Funds’ Buy & Care® strategy. The
second part contains the 2018–2019 financial and impact
performance of the Cadmos Peace Investment Fund. It provides detailed information on the financial results,
voting activities, engagement meetings and the resulting impacts. The purpose of this report is to allow our
investors evaluate our capacity to deliver the expected risk-adjusted performance with an appropriate positive peacebuilding impact.
TABLE OF CONTENTS
THE CADMOS FUNDS’ BUY & CARE® STRATEGY
THE CADMOS FUNDS’ BUY & CARE STRATEGY........................... 4
ACTIVE PORTFOLIO
MANAGEMENT .............................................. 6
ACTIVE OWNERSHIP ................................. 8
ACTIVE ENGAGEMENT AND IMPACT ................................................. 9 Engagement process ............................................................ 10
Company Publications & Data ........................... 10 Selection of Material Topics ................................ 11 Assessment & Assessment Report ...................... 13 Shareholder Dialogue .......................................... 14 Engagement for Additional Social Impact - Peace Promoting Business Practices ................... 15 Engagement & Impact Level Assessment ........... 16
KEY DIFFERENTIATING CHARACTERISTICS ...................................... 17
TESTIMONIALS ............................................. 18
CADMOS PEACE INVESTMENT FUND
PERFORMANCES SUMMARY .............. 20
ACTIVE PORTFOLIO
MANAGEMENT ....................................... 22 Peacebuilding Business Index ..................................... 23 Regions and Sectors ...................................................... 23 Portfolio Management Summary Table ................... 24
ACTIVE OWNERSHIP ............................. 25 Voting Trends ............................................................ 25 Main Oppositions ...................................................... 25 Distribution of Votes and Oppositions ...................... 26 Active Ownership Summary Table ........................... 27
ACTIVE ENGAGEMENT AND IMPACT ........................................... 29 A) Engagement for the Strategic Integration of
Sustainability into the Business Model Achievements .................................................. 29
Selection of Material Topics ................................. 30 Assessment and Reporting ........................................... 31
Preparedness on Key Topics ........................... 31 Quality of Reporting ..................................... 31 Sustainability Organization ............................ 32 Sustainability Frameworks .............................. 32 Peacebuilding Embeddedness ........................ 32
Shareholder Dialogue .............................................. 33 B) Engagement for Additional Social Impact /
Peace Promoting Business Practices Achievements ................................................... 34
Flagship Stories ......................................................... 35 A) Engagement for the Strategic Integration of Sustainability into the Business Model Summary Table ......................................................... 36 B) Engagement for Additional Social Impact - Peace Promoting Business Practices Summary Table ......................................................... 37
INTEGRATED PERFORMANCE REPORT (SAMPLE) ............................... 39 Standard Chartered ............................................. 40
PBBI SCORECARD REPORT (SAMPLE) ............................... 45 Standard Chartered ............................................. 46
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THE CADMOS FUNDS’ BUY & CARE® STRATEGY
PPT has always thought it unwise to ignore, within
investment decisions, the need to tackle the world’s main
challenges. The aspirations of the international
community have been captured in the seventeen UN
Sustainable Development Goals (SGDs). Along with the
ongoing trends of global warming, population growth,
aging, increase of violent conflicts and urbanization, it
has become evident that solving these goals will pose an
even greater challenge to human society and to the
sustainability of some business models.
However, in every challenge, there lies opportunity and
this is where Cadmos stands. Among our Cadmos
engagement funds, the Peace Investment Fund was
launched to encourage conflict-sensitive and peace
promoting business practices among large multinationals.
Companies that develop business models contributing to
solve global challenges will continue to lead the markets
and shape the competitive landscape. Cadmos’ portfolio
managers therefore select highly profitable leaders with a
sustainable competitive advantage that is tackling global
challenges and which can continuously finance their
medium to long term growth.
The Cadmos Peace Investment Fund is not only about
picking the highest rated companies, but also the ones that
have the highest potential or capacity to contribute to peace
and stability. Broad-minded and experienced portfolio
managers with both strong financial and ESG skills are
required to select companies that have the highest potential
and capacity to create positive social impacts.
Adding the third impact dimension to the traditional risk-
return models provides more depth and perspective to their
analysis. In particular, the portfolio managers’ participation in
the engagement meetings together with our external
sustainability experts has been instrumental to understanding
how positive or negative ESG impacts directly influence
performance and risk. By selecting and engaging highly
profitable, transparent, impact-conscious, innovative leaders,
we can simultaneously achieve better financial performances,
generate positive impacts while being exposed to lesser risks.
WHY CADMOS?
The Buy & Care investment strategy, applied since 2006, is a cyclical process designed by PPT to better integrate the financially material sustainability and peacebuilding factors. Through active ownership and direct engagement with companies, we can better select tomorrow’s winners and improve our portfolios’ risk-reward-impact profile.
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THE CADMOS FUNDS’ BUY & CARE® STRATEGY
The Buy & Care strategy’s three founding principles have proved to be reliable
in the long term through changing financial and economic cycles.
1. We do not invest in a stock but in a company. Every effort will be made to visit the companies and increase our understanding of their sustainable competitive advantage and of the quality of their management. Our in-depth analysis strengthens our convictions, reduces portfolio turnover and hence transaction fees, while also enabling us to deviate from the benchmarks.
2. We actively fulfill the rights and duties as a responsible shareholder. We are proud to have integrated active ownership since
2006 within our Buy & Care® strategy, which starts with
exercising voting rights. We build in-depth knowledge
of the companies’ governance, management, and
financial structure.
3. We actively seek ways to engage and generate additional social/peacebuilding impacts. As responsible shareholders, we assess our companies’
financially material sustainability – including peacebuilding –
risks and opportunities. Our gap analysis help us to engage
companies to stimulate tangible improvements through better
sustainability integration. We also stimulate new business and financial
opportunities that are contributing to solve social, environmental
and peacebuilding challenges.
We foster progress through our expert driven, “soft power” but non-indulgent dialogue with companies. Through an additional engagement for social impact (peacebuilding in fragile states) we aim to achieve further tangible impacts.
The flagship Cadmos European Engagement Fund has been managed since its inception in 2006 by
Christopher Quast together with Paolo Bozzo from PPT. Christopher has managed European Equities at PPT since 1999, outperforming the markets two
out of three years.
The Cadmos Emerging Markets Engagement Fund has been managed since its inception in 2009 by
Wojciech Stanislawski together with Juliette Alves from Comgest. Comgest has managed the flagship
Emerging Markets fund Magellan since 1994 and Wojciech joined the firm in 1999.
The Cadmos Swiss Engagement Fund has been managed since its inception in 2014 by Alexandre
Stucki together with Nathalie Kappeler from ASIM. ASIM was founded in 2006 and focuses exclusively on managing Swiss equities.
The Cadmos Peace Investment Fund which has been launched in January 2018, is managed by Paolo Bozzo together with Christopher Quast from PPT. It was recently shortlisted by the UN
PRI for the PRI Awards in the “Active Ownership Project of the year” category.
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1. ACTIVE PORTFOLIO MANAGEMENT
The Cadmos Peace Investment Fund invests only in
profitable companies that have preferably a high net positive
peacebuilding impact according to the Peacebuilding Business
Index1 (PBBI). We believe conflict-sensitive and peace-
promoting business practices is a financially material topic for
all companies highly involved in fragile markets. We are
convinced that companies that are adapted to performing
responsibly in the complex environment of conflict-prone
countries are more likely to be resistant to shocks and
outperform their peers. Moreover, these companies that
invest highly in the conflict-prone countries or have a strong
presence on the ground through business partnerships via
their supply chain, are likely to contribute more to peace.
The underlying PBBI methodology developed by the
PeaceNexus Foundation in collaboration with the ESG-rating
agency Covalence, is instrumental for the pre-selection of
potential companies for the Fund. We begin by selecting 300
investable large- and mid-cap companies with the biggest
economic impact in the 75 most fragile countries2. Our main
source of data for economic impact in fragile states is the
Financial Times fDi Markets database. The fDi Markets
provides information per company and country on
investment projects, foreign direct investment and the
number of jobs created. We also consider companies with a
strong presence on the ground either through business
partnerships in fragile states via their supply chain or through
the sale of products and services.
The PBBI then ranks these 300 companies according to their
peacebuilding sensitivity based on the three levels of analysis:
global peacebuilding related ESG policies (25% of the final
score), local ESG practices (25%), and the local peacebuilding
practices (50%). The Peacebuilding Business criteria3(PBBC),
also developed by the PeaceNexus Foundation, provides a
reference4 framework to evaluate companies’ peacebuilding
behaviour. This information is gathered from various sources,
including companies’ global and local communications, global
and local media and reporting by stakeholders such as trade
unions and non-governmental organizations.
Companies with a PBBI score of more than 50% (150-200
companies) are eligible for inclusion in the Cadmos Peace
Investment Fund. But since peacebuilding data are mainly
qualitative, and new information can emerge at any time, an
advisory committee comprising PPT and the PeaceNexus
representatives may nevertheless decide to qualify any of the
remaining companies. At present, 31 of the 32 companies in
the Fund, score above 50% in the PBBI index. Facebook was
included in the Fund despite its low PBBI score, due to indices
showing the company’s willingness to improve and their
intention to hire a human rights policy director responsible for
conflict prevention and peacebuilding.
PEACEBUILDING BUSINESS INDEX- RANKING (SAMPLES)
Source:
1 For further information about the screening process and the Peacebuilding Business Index, please refer to: https://peacenexus.org/wp-content/uploads/2019/06/PBBI-methodology-final_update29.05.2019.pdf 2. We use a consensus approach to identify the states that can be considered fragile. We aggregate nine existing lists that select or rank countries based on criteria such as the risk of armed conflict, the level of development and the respect for human rights. Through this approach, we identified seventy-five fragile states in 2018.
3. For further information about the Peacebuilding Business Criteria, please refer to: https://peacenexus.org/wp-content/uploads/2019/06/PBBI-methodology-final_update29.05.2019.pdf 4. “7 ways business can be agents for peace” World Economic Forum, May 2019. Please refer to: https://www.weforum.org/agenda/2019/05/7-ways-business-can-be-agents-for-peace/
https://www.weforum.org/agenda/2019/05/7-ways-business-can-be-agents-for-peace/https://www.weforum.org/agenda/2019/05/7-ways-business-can-be-agents-for-peace/
[7]
1. ACTIVE PORTFOLIO MANAGEMENT
Over the years, our approach has evolved steadily, steered
by the Cadmos portfolio managers. We begin by screening
the healthiest investable companies in a predefined
universe. In our bottom-up stock selection process, we
select only profitable, organically growing, sustainable
businesses exposed to attractive end markets or secular
trends. Primarily for this reason, the Cadmos Funds do
not invest in tobacco companies or arms manufacturers.
We do not apply any further exclusions except when
specifically asked by our clients.
We look for companies with strong financial ratios and
profitability levels that enable them to finance further
growth while rewarding their shareholders. These
companies will be accompanied by more rigorous financial
and qualitative analysis through company visits and
external reviews. These steps will lead to a better
understanding of the companies’ long-term growth
prospects, the sustainability of their competitive
advantage, their management quality, margins, balance-
sheet quality and cash- flow generation.
A business model is only sustainable if it appropriately
integrates sustainability issues and effectively drives the
transitions which are reshaping an industry. Appropriately
positioning a company to the pace of the energy,
technological, nutritional or any other transition often
proves critical.
The delicate task of analyzing management quality is made
easier by our visits and discussions, which enhance our
ability to evaluate the consistency between a company’s
reports and its concrete actions. By going beyond the
company’s reporting and meeting its management, we
sharpen our investment convictions.
When constructing the portfolio, we apply various
techniques to check that the companies that interest us are
not overpriced. The high-quality companies thus identified
must present attractive potential for gains in the medium
and long-term. Our practical experience with applying
integrated valuation models obliges us to remain modest
and conscious that it is a continuous, difficult learning
process.
CADMOS’ COMPANY ANALYSIS AND PORTFOLIO MANAGEMENT
Constructing the portfolio involves the rigorous selection of only those companies with the strongest potential for
outperformance in the medium to long term. This concentration is desirable in the case of an engagement fund, since it
means that the cost of the shareholder dialogue with the management of invested companies may be contained. That
concentration is combined with a lower turnover rate, which increases the quality of the dialogue. We do not set ourselves
a tracking-error ratio target but the ratio is usually rather high. The indices should not influence the investment-decision
process but serve solely as a risk-management tool. Moreover, the long-term performance can be significantly increased with
the additional support of an excellent selling discipline. Changes in the fundamentals, risks or valuation of the underlyings,
together with the quality of the dialogue, will influence the portfolio manager’s view on company’s future prospect and may
lead to decisions to sell or buy more.
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2. ACTIVE OWNERSHIP
Voting provides our portfolio managers with valuable information about the quality of a company’s governance. It is also a necessary first step before engaging with the management. Few professionals would deny that the skills, independence and availability of a board of directors are critical to a company’s future. The effects of a capital increase, for example, will be felt immediately. For PPT, exercising the right to vote is first and foremost a financial responsibility.
The Cadmos portfolio managers define their voting
positions by studying the analyses of annual general
meetings (AGMs) and the voting recommendations
supplied by various proxy advisory firms. They have the rights and the duty to deviate from the proxy’s
recommendations, should they find that these do not
take full account of the companies’ business models and
particularities or do not correspond to their respective
internal voting guidelines, which are available on request. For the European, Swiss and the Peace
Investment Fund, the selected proxy advisor is Glass
Lewis. This independent agency is a leading provider of
governance assessment and voting advice and covers more than 23,000 companies in more than a hundred
countries. It can supply consistent assessments
throughout all the countries represented in the Fund.
For the Cadmos Emerging Markets Engagement Fund,
Comgest works with Institutional Shareholder Services (ISS) and benefits from its global reach: ISS has nineteen
offices worldwide and an experienced research team
fluent in twenty-five languages.
For reporting purposes, we apply the format of PPT’s voting guidelines, dividing the items under discussion at an AGM into four topics: the structure of the board of directors; the transparency and coherence of the remuneration structure; structure and ownership of share capital; and shareholders’ rights.
VOTING GUIDELINES
STRUCTURE OF THE BOARD OF DIRECTORS 1. Election of individual board members 2. Functioning and independence of the
various committees 3. Separation of CEO function and chairman
of the board of directors 4. Granting of the discharge
TRANSPARENCY AND COHERENCE OF THE REMUNERATION STRUCTURE
5. Appropriate structure of the remuneration system for the executive committee
6. Appropriate structure of the remuneration system for the board members
STRUCTURE AND OWNERSHIP OF SHARE CAPITAL
7. Approval of accounts and allocation of profits/dividends
8. Appropriate capital structure 9. Appointment of the auditors
SHAREHOLDERS’ RIGHTS 10. Amendments to articles of association,
equal treatment of shareholders and anti-takeover measures
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3. ACTIVE ENGAGEMENT & IMPACT
Through direct, expert-driven and regular engagement meetings with our companies, Cadmos promotes change and
progress and spurs them onto enhancing positive impacts. For our portfolio managers – and hence for our investors – it
leads to better understanding of how convincingly the company is addressing its material sustainability topics.
Cadmos’ engagement process has two objectives.
A. Engagement for the Strategic Integration of Sustainability into the Business Model:
Engagement for the strategic integration of sustainability
into the business model is the Cadmos Funds’
overarching goal and their common denominator. All our
dialogues and engagement meetings are designed to motivate companies not only to give greater consideration
to the tangible financial risks of inaction, negligence or
even unlawful behavior but essentially to increase the
integration of the key material environmental, social and governance topics into their strategy and communication.
We view this true integration of sustainability factors into
the heart of a company’s strategy and daily operations as
the next major milestone. To reach it, our engagement goes well beyond simple dialogue with the company’s
management. Each year, the portfolio managers and our
experts make clear progress recommendations based on
an assessment of each company’s identified gaps. The
companies are often aware of their challenges or ready to consent to certain adjustments, particularly as these are
proposed by a loyal investor and come with expert advice.
B. Engagement for Additional Social Impact Peace Promoting Business Practices:
Our dialogue with the investee companies together
with external experts is also geared to achieving
additional peacebuilding and broader social impacts.
For the companies from the Cadmos Peace Investment Fund, these engagement activities are
initiated by PeaceNexus as well as other selected
organisations. Our experts provide advice on anti-
corruption policies and procedures, participation in multi-stakeholder peacebuilding relevant initiatives,
conflict-sensitive human resource or supply chain
management, product stewardship in fragile countries,
oversight of private security personnel and on SDG-
16 reporting.
We also advise companies on setting-up targeted
blended finance instruments, on partnerships with
social enterprises or on improving their SDG linked communication. This is to be done by promoting
global partnerships – SDG 17.
These recommended projects are always linked to the
companies’ core business and aim to strengthen their sustainable competitive advantage.
As a long-term investor, we value additional social impact and in particular more resilient companies as a potential means to strengthen our portfolio companies’ competitive advantage while contributing to the SDG’s.
Cadmos Peace Investment Fund investees are systematically introduced to the PeaceNexus Foundation. Established in Switzerland in 2009, it has built a unique expertise in business and peace. Together with NexusVesting, Covalence and its network of experts, they provide capacity building services to organisations allowing them to increase their effectiveness and contribution to building more inclusive and peaceful societies.
Selected Cadmos portfolio companies benefit from specific advice related to all relevant SDG’s to create additional social impact through global partnerships.
https://www.google.ch/imgres?imgurl=https://sustainabledevelopment.un.org/content/images/E_SDG_Icons-16.jpg&imgrefurl=https://sustainabledevelopment.un.org/sdg16&docid=6xwR7ewCIHw3jM&tbnid=Cq86zLlAziJGAM:&vet=10ahUKEwjDnvvg_endAhVL1iwKHRPID9AQMwg2KAAwAA..i&w=466&h=466&bih=1070&biw=2133&q=sdg%2016&ved=0ahUKEwjDnvvg_endAhVL1iwKHRPID9AQMwg2KAAwAA&iact=mrc&uact=8
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ENGAGEMENT PROCESS
The table below provides an overview of the Cadmos engagement process. All steps leading to “Shareholder dialogue” are
consistent across all Cadmos Funds. Engagement for additional social impact is applied whenever relevant and whenever
we have identified specific additional social impact opportunities for a company. All companies from the Cadmos Peace
Investment Fund benefit from a special “SDG 16” peacebuilding engagement, designed to stimulate the companies that are
active in fragile countries to contribute to regional stabilization with additional peacebuilding initiatives.
1- COMPANY PUBLICATIONS AND DATA
The first step consists of collecting each company’s sustainability data. Our engagement team studies all the company
disclosures, as well as media publications and specific databases (CDP, PRI, Bloomberg, SASB etc.). For media
controversies and stories, they use the RepRisk database.
https://www.google.ch/imgres?imgurl=https://sustainabledevelopment.un.org/content/images/E_SDG_Icons-16.jpg&imgrefurl=https://sustainabledevelopment.un.org/sdg16&docid=6xwR7ewCIHw3jM&tbnid=Cq86zLlAziJGAM:&vet=10ahUKEwjDnvvg_endAhVL1iwKHRPID9AQMwg2KAAwAA..i&w=466&h=466&bih=1070&biw=2133&q=sdg%2016&ved=0ahUKEwjDnvvg_endAhVL1iwKHRPID9AQMwg2KAAwAA&iact=mrc&uact=8
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CLIMATE CHANGE IMPACT
ENGAGEMENT PROCESS
2- 2- SELECTION OF MATERIAL TOPICS
Our engagement team has condensed all the material issues affecting the companies into nine topics. Together these topics encompass all the issues identified by traditional sustainability frameworks such as the UN Global Compact, the Global Reporting Initiative, the UN Guiding Principles and the Sustainable Development Goals. Unlike those frameworks, we have allowed the topics to overlap rather than making them mutually exclusive, so as to target the companies’ most material issues instead of generic categories. Human rights do not appear as a single topic. Instead, particularly in the light of the UN Guiding Principles on Human Rights, they are considered overarching, and are integrated into all nine topics. We believe that application of the UN Guiding Principles on Business and Human Rights, known as the “Ruggie Principles”, will represent the main challenge for large multinationals. Moreover, these principles rightfully regard climate change as a human-rights issue.
E
S
G
Human rights do not appear as a single topic.
Instead, particularly in the light of the UN Guiding
Principles on Human Rights, they are considered
overarching, and are integrated into all nine topics.
Companies are expected to foster a loyal and diverse workforce by acknowledging, understanding and proactively using differences among people to strike a balance that benefits the business.
DIVERSITY AND EMPLOYEE LOYALTY
Companies are expected to exceed core labor standards (freedom of association, collective bargaining, forced or child labor, discrimination, health and safety, etc.) and not contribute to violations through their business relationships.
CORE LABOR STANDARDS
COMPLIANCE
Companies are expected to assess the rights and interests of communities, identify potential positive and negative impacts, avoid or mitigate negative impacts, foster positive impacts and establish engagement procedures.
IMPACT ON COMMUNITIES
Companies are expected to exercise due care and foresight in their management of products and services to systematically prevent potential negative social impacts or foster positive impacts along the full life cycle.
PRODUCT SOCIAL IMPACT
Companies are expected to apply due diligence in their relationship with suppliers to prevent and mitigate negative environmental impacts and to engage with them to promote and foster positive environmental impacts.
SUPPLIER ENVIRONMENTAL
IMPACT
Companies are expected to promote practices such as environmental responsibility, resource efficiency and pollution prevention across the full life cycle of their products and services.
PRODUCT ENVIRONMENTAL
IMPACT
Companies are expected to cut GHG emissions in their own operations and value chains, foster low-carbon solutions, and mitigate and/or adapt to the impacts of climate change.
SUPPLIER SOCIAL IMPACT
Companies are expected to apply due diligence in their relationship with suppliers to prevent and mitigate negative social impacts and to engage with them to promote and foster positive social impacts.
BUSINESS INTEGRITY
Companies are expected to maintain compliance and demonstrate their adherence to integrity, governance, and responsible business practices (bribery, money laundering, collusion, tax evasion, fraud, insider trading, etc).
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CLIMATE CHANGE IMPACT
ENGAGEMENT PROCESS
From these nine material topics, we select the most material topics for each company, depending on that company’s
characteristics and industry sector. Our initial selection will be guided by the company’s materiality matrix or its own definition of its priorities. Next, our analysts will challenge the company’s view by going over the nature of any recent or
recurring media controversies. In the third step, we consider the priorities set by specific sector frameworks such as the SASB Materiality Map™. This is an interactive tool that identifies and compares disclosure topics across different industries and sectors. The final decision as to the maximum three most material topics is made by the portfolio manager,
considering the company’s business model and its development strategy.
E
S
• Rigorous and transparent process
• Select the most material topics
• Decision by portfolio manager
G
The final decision as to the most material topics is
made by the portfolio manager, considering the
company’s business model and its development
strategy. We encourage companies to better integrate
these topics into their strategy and report on them in
relation to their financial materiality.
CORE LABOR STANDARDS
COMPLIANCE
CORE LABOR STANDARDS
COMPLIANCE
IMPACT ON COMMUNITIES
IMPACT ON COMMUNITIES
PRODUCT SOCIAL IMPACT
PRODUCT SOCIAL IMPACT
SUPPLIER ENVIRONMENTAL
IMPACT
SUPPLIER ENVIRONMENTAL
IMPACT
PRODUCT ENVIRONMENTAL
IMPACT
PRODUCT ENVIRONMENTAL
IMPACT
CLIMATE CHANGE IMPACT
SUPPLIER SOCIAL IMPACT
SUPPLIER SOCIAL IMPACT
DIVERSITY AND EMPLOYEE LOYALTY
DIVERSITY AND EMPLOYEE LOYALTY
BUSINESS INTEGRITY
BUSINESS INTEGRITY
MATERIALITY MEDIA MATRIX CONTROVERSIES
BUSINESS MODEL
SECTOR FRAMEWORKS
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ENGAGEMENT PROCESS
3- ASSESSMENT AND ASSESSMENT REPORT The engagement process is a robust, comprehensive
methodology designed to assess and benchmark a company’s
preparedness to address its most material sustainability topics.
Preparedness is assessed according to five criteria that draw
heavily on the UN Guiding Principles, particularly the
operational principles of policy commitment and human-rights
due diligence. The five criteria are: materiality; commitment and
strategy; objectives and actions; indicators and monitoring; and
achievements. These criteria are used to identify gaps in the
company’s preparedness to address its most material issues.
The assessment of reporting quality comprises six criteria:
accessibility, clarity, comparability, accuracy, reliability and
integration, to determine how well the company’s publications
address the most material topics. We want to make sure in
particular that the reported sustainability data are linked to
financial reports or metrics (essentially top line, bottom line and
risks).
We also assess each company’s sustainability organization and
governance. Four criteria measure the extent to which
sustainability is integrated into the company’s overall strategy,
the level in the organization with ultimate responsibility for
sustainability management, the extent which the company
involves and engages its employees and the extent to which it
engages its shareholders and other stakeholders.
Fourth, we assess quantitatively how closely companies adhere
to specific sustainability frameworks, such as the UN Guiding
Principles, the UN Global Compact, the Global Reporting
Initiative and the Sustainable Development Goals. In the case of the UNGPs for instance, a company would receive the
highest score if it had adopted the reporting framework,
established a human rights policy, performed due diligence and
implemented a remediation process.
For all companies from the Peace Investment Fund, a
“Peacebuilding Embeddedness” assessment is conducted. It
allows us to point out the financial materiality of PeaceNexus’
Peacebuildling Business Criteria (PBBC) and motivate the
management bodies to follow-up with our experts to
strengthen their peace promoting business practices. The six
indicators below are taken directly from the Labour, Sourcing
and Stakeholder Engagement dimensions of the PBBC. They
are also the most reported on within public documents.
Peacebuilding embeddedness assessment
The assessments of all these individual criteria are based on a
simple four-grade scoring system from 0 to 3. Every score
comes with a detailed commentary. These assessments are not
primarily used to select the best companies but essentially to
make them progress on their identified gaps to best practices.
An assessment summary report is sent to each company’s
highest executive and operational bodies. It aims to redirect
their attention to their company’s strengths and weaknesses
and not on abstract scores or ratings. We focus on the main
sustainability gaps and improvement suggestions that we want
to address directly with the company. The assessment report
thus stimulates key company representatives to participate in a
constructive dialogue with the engagement team and the
portfolio managers.
[14]
ENGAGEMENT PROCESS
4- SHAREHOLDER DIALOGUE
At meetings with the companies, we insist on including representatives of both the investor relations and corporate social
responsibility departments. By providing pragmatic help and advice and emphasizing the business case for sustainability
including peacebuilding embeddedness, we first encourage the companies to better integrate their most material topics into
their strategy and operations.
Our assessment and through gap analysis give credibility to our recommendations, which are specific, tangible and easily
implemented. According to the companies’ feedback, we are the only asset manager to conduct meetings that bring
together the financial expertise of the portfolio managers and the sustainability expertise offered by the senior consultants
of our external engagement team from BHP – Brugger & Partners.
PPT and BHP collaborated closely on developing the assessment and engagement process, which represents many years
of combined engagement expertise. Since inception of the Cadmos Funds in 2006, BHP’s engagement team conducts the
company assessments, and its senior consultants organise, coordinate and lead the engagement meetings. The senior
consultants below all have extensive expertise in advising companies on sustainability issues.
We formulate clear progress recommendations and
support companies to better integrate financially
material sustainability topics or to create additional
tangible social impacts related to the SDG’s
Shareholder dialogue
• Led by PPT’s advisor: BHP - Brugger & Partners • Participation of Cadmos portfolio managers • On-site visits or conference calls • Company C-level or board member participation
Objective
• Focus on financial materiality - Push for integration • Gap analysis — Increase awareness to progress • Progress recommendations - Stimulate best-practices • Raise interest on social impact - Provide support
[15]
ENGAGEMENT PROCESS
5- ENGAGEMENT FOR ADDITIONAL SOCIAL IMPACT -
PEACE PROMOTING BUSINESS PRACTICES
“Engagement for additional social impact” and in
particular related to peacebuilding and the SDG-16 is
applied systematically within the Cadmos Peace
Investment Fund. Social impact is penetrating
discussions at board level, and some companies have
begun to make it a core element of their business
strategy for exploring new market opportunities and
addressing millennials’ expectations. Yet, most
companies are still struggling on how to scale, integrate
and report on social impact or the SDG’s.
Major SDG’s are often too large for any one party to tackle alone. As a growing body of evidence shows, social enterprises, NGO’s, foundations, developing agencies and other organization together with corporates are able to achieve far more positive social and environmental impact, while benefiting the communities that they serve on a scale not possible when acting alone.
This is to be done in particular by promoting partnerships directly
linked to their business models. This explains our propensity to
present Cadmos in connection with SDG-17.
At the end of every engagement meeting, we urge selected
companies to follow up with an exclusive meeting with the
PeaceNexus Foundation. They conduct tailored in-depth
assessments to identify clear gaps and formulate tangible progress
recommendations.
Inspired by: Stockholm Resilience Center (Illustration: Azote)
https://www.google.ch/imgres?imgurl=https://sustainabledevelopment.un.org/content/images/E_SDG_Icons-16.jpg&imgrefurl=https://sustainabledevelopment.un.org/sdg16&docid=6xwR7ewCIHw3jM&tbnid=Cq86zLlAziJGAM:&vet=10ahUKEwjDnvvg_endAhVL1iwKHRPID9AQMwg2KAAwAA..i&w=466&h=466&bih=1070&biw=2133&q=sdg%2016&ved=0ahUKEwjDnvvg_endAhVL1iwKHRPID9AQMwg2KAAwAA&iact=mrc&uact=8
[16]
ENGAGEMENT PROCESS
6- ENGAGEMENT AND IMPACT LEVEL ASSESSMENT
A. Engagement for the Strategic Integration of Sustainability into the Business Model Level (0-5)
Cadmos is among a minority of funds which transparently
reports the successes as well as the non-achievements of its
engagement activities. To evaluate our engagement progress,
we measure the engagement level of each company. Only
when a company reaches level 5, signifying that it has acted on
one of our recommendations, we consider that we have
achieved a desired impact. In any case, we continue to engage
with the companies every year to foster new progresses and
tangible impacts. The first target is to create a dialogue (level
2) with each portfolio company within three years. Our long-
term (five-year) impact objective is to generate positive
additional impacts at a majority of our portfolio companies.
B. Engagement for Additional Social Impact – Peace Promoting Business Practices Level (0-5)
Since 2017, we also assess the progress we make with
individual companies on our specific engagement for
additional social impact. We use a similar scale from 0 to 5 to
monitor the progress companies are making based on the
suggestion of KiKLab, the PeaceNexus Foundation or other
social impact partners. Whenever a discussed additional social
impact or peacebuilding project is being implemented, we
consider it having reached level 5. The implementation of
these Cadmos originated projects are mostly financed by the
companies themselves. The Fund will report whenever
possible on the achieved impacts.
SPECIALISED PEACEBUILDING AND SOCIAL IMPACT PARTNERS
Our impact partners and in particular the PeaceNexus Foundation have developed their own specific methodology to
conduct tailored in-depth assessments of the willing portfolio companies. Through meetings, interview and desk research,
insights are obtained which give a clearer view of the gaps for tangible peacebuilding or social impacts.
PEACENEXUS FOUNDATION Recognized pioneer in connecting businesses and peacebuilding (PBBC Methodology) Catriona Gourlay (Executive Director) & Johannes Schreuder (Dialogue with business lead)
NEXUSVESTING
Supports PeaceNexus in providing in-depth peacebuilding assessments and recommendations Anne Gloor (Founder and Managing Director)
COVALENCE
Supports PeaceNexus in the development and calculation of the PBBI Antoine Mach and Marc Rochat (Co-founders and Partners)
[17]
KEY DIFFERENTIATING CHARACTERISTICS
The Buy & Care® strategy is attractive to both
investors who are mainly pursuing financial returns
as well as to the most demanding ESG investors.
The Cadmos Funds have achieved to outperform
and create additional social impacts in most market
circumstances since 2006.
Our portfolio managers are not subject to possibly
dogmatic exclusion rules or ESG ratings. Ratings and
exclusions can be useful as they stimulate companies to
improve but they tend to be backward looking, often
take insufficient account of the companies’ business
models and are rarely factored into the share price. As a
result, they can lead to sub-optimal investment
decisions.
The Cadmos Funds portfolio managers are fully
responsible for the Fund’s financial and impact
performance. They carefully select a limited number of
portfolio companies leading the markets and shaping the
competitive landscape and strengthen their convictions
by directly engaging with the management and
operational teams of these companies to foster
continuous progress.
Engagement for the strategic integration of
sustainability into the business model and
engagement for additional social impacts are the
main distinguishing features of the Cadmos Funds.
We believe that in all but a few exceptional cases,
dialogue is preferable to exclusion. Sometimes the
Cadmos Funds remain the only responsible investor still
maintaining the dialogue with companies. The expertise
of PPT and its engagement partners have won the
companies’ respect and trust as competent, demanding
but pragmatic shareholders.
Active ownership starts in the pre-investing phase by
analyzing the governance and communication of a
company and by voting in our interest as a long-term
shareholder at general meetings. Each year we undertake
a rigorous and comprehensive assessment of their
reporting. We identify the gaps and engage with our
investee companies by making progress
recommendations to more coherently integrate ESG.
Cadmos is also setting a new standard for creating
additional impacts within listed equities by connecting
our portfolio companies with the expertise of our social
impact partners.
In 2019, the Cadmos Peace Investment Funds was nominated by the United Nations-supported Principles for Responsible Investment (PRI) awards within the category "Active Ownership Project of the Year".
[18]
TESTIMONIALS
After the first year, Cadmos already received many testimonials from companies. On this page we list a few examples from the 2018-2019 engagement cycle.
“The engagement of PeaceNexus with SAP via the Peace Investment Fund was instrumental in raising our awareness about our contribution to peacebuilding and SDG 16. Their solid peacebuilding assessment on SAP provided us with concrete recommendations to further strengthen our contribution.”
-Will Ritzrau, Director of Sustainability, SAP
“Sika aims to be well positioned for the future, especially as sustainability has been a crucial aspect of our business practices. The assessment results and the discussion with the Cadmos Engagement Funds provide an important impulse for the further development of strategical and operational sustainability-related topics and initiatives.”
-Dominik Slappnig, Head of Corporate Communication & IR, Sika AG
“…We further discussed the assessment points that you raised and how to implement them. We are looking forward to continuing our engagement together… Our discussion on peace building arrived at a moment when we also started to think of the connections between sustainability and peace. I continue to think it’s a very relevant angle for both action and communication, that requires a structured and long-term approach vs one-shot studies…”
-Emilienne Lepoutre, Sustainability Manager, Schneider Electric
“Since the inclusion of Essilor in the Cadmos European Engagement Fund in 2006, we had the opportunity to discuss annually with its independent experts’ team the finding and always very useful evaluations of Essilor’s preparedness in managing relevant ESG aspects. The interactions have been highly constructive and based on mutual respect and appreciation.”
-Xavier Galliot, Chief Sustainability Officer, EssilorLuxottica
17
CADMOS PEACE
INVESTMENT
FUND
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Perf
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sum
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ACTIVE PORTFOLIO MANAGEMENT
The Cadmos Peace Investment Fund, managed and
distributed by de Pury Pictet Turrettini (PPT), is a sub-fund
of the Luxembourg-based Cadmos Fund. Christopher Quast,
the head of European equity management at PPT since 1999,
together with Paolo Bozzo are managing the Fund since its
inception. Within that period from January 26th 2018 to
December 2018, the Fund (Class A) returned -9.3%,
between our reference indexes (MSCI All Countries
World Index Net Return and MSCI Europe Net
Return) which returned -8.2% and -13.1% respectively.
Until the end of September, the fund was able to perform
strong, but it saw a sharp drop towards the end of the year.
During the volatility times, the main drivers of the drawdown
were the cyclical part of the portfolio, namely the industrials
and the financial stocks, while more defensive sectors, such
as health and food, have slowed the decline of the overall
portfolio.
During the year it welcomed two new entrants (Facebook and
Microsoft), while selling one company (BBVA). Our decisions take
into account of many factors, such as the sustainability of the
business model, the market valuation, the peacebuilding business
index and the portfolio’s overall balance.
The engagement team continued to engage with the companies
represented in the portfolio, together with the portfolio manager,
who took part in all the dialogues conducted. The information
obtained from this year’s engagement process enriched again the
investment process and sharpened our insight into the sustainability
of each company’s business model.
ACTIVE OWNERSHIP
During the period under review, we expressed an opinion
on 570 items on the agendas of annual general meetings
(AGMs). This figure represents a certain stabilisation in the
number of voting decisions at least within Europe.
Votes on remuneration have risen to 82 in 2018 as
consultative or binding votes on remuneration have been
introduced in many developed markets over the past years.
77% of the resolutions submitted to the vote still concern
the structure of the board of directors and the capital
structure.
Of the total 570 votes that we cast, forty-six or 8.1% were
against management recommendations.
Overall, the items that once again elicited most of our oppositions
were linked to the structure and independence of the board of
directors (twenty-eight “Against” votes). In relative terms,
shareholders’ rights was the most contentious category with one
in five votes against management recommendations.
ACTIVE ENGAGEMENT AND IMPACT
We engaged with nineteen companies in the Fund in this
reporting cycle, through six on-site visits and thirteen
conference calls. Together, these companies represent 66%
of the thirty-two that we assessed.
Our engagement targets for the Cadmos Peace Investment
Fund are ambitious. The first target is to create a dialogue
with each company within three years. We will be able to
monitor this first indicator in 2020. We are surprised by the
high rate of engagement we reached already in this first
engagement cycle and the quality of the peacebuilding
dialogues we held with these companies.
Regarding peacebuilding and SDG-16 specifically, we
stimulate all our portfolio companies to implement more
conflict-sensitive and peace-promoting business practices
within their operations in fragile states (Engagement for
additional social impact - level 5).
We discussed Peacebuilding with 69% of the portfolio
companies. 7 companies accepted an in-depth
peacebuilding assessment or are already discussing a
potential tangible project to improve their peace promoting
business practices.
Moreover, we aim to generate positive impacts within five years
at a majority of our portfolio companies regarding their
sustainability integration, by motivating them to follow our
recommendations (engagement for the strategic integration of
sustainability into the business model - level 5). This objective will
be measurable in 2022 but if we consider companies from the
Fund which have been in the Cadmos universe since 2013, this
objective would be reached by 93% of companies. During the
period under review, eight companies (ABB, Essilor-
Luxottica, L’Oréal, Nestle, Schneider Electric, SGS, Sika
and Standard Chartered.) acted on our recommendations
and improved on at least one weak point raised the year
before.
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ACTIVE PORTFOLIO MANAGEMENT
Paolo Bozzo and Christopher Quast of PPT have managed the flagship Cadmos European Engagement Fund according to the
Buy & Care ® strategy since its inception on January 26th 2018. Mr. Quast has managed European equities at PPT since 1999 and.
Paolo Bozzo has 16 years of financial markets expertise.
The sub-fund ended 2018 with a return of -9.3%, between our
reference indexes (MSCI All Countries World Index Net
Return and MSCI Europe Net Return) which returned -8.2%
and -13.1% respectively. The fund does not have an official
benchmark as the investment universe is also driven by the
companies having the highest impact in fragile states which
are mainly European companies. At the end of the year in
2018, the Fund comprised thirty-two companies. During the
year, it welcomed two new entrants1, and divested one
company2. Our decisions take into account of many factors,
such as the sustainability of the business model, multiples-
based valuations, the peacebuilding business index and the
portfolio’s overall balance.
Until the end of September, the fund performed strong, but
it experienced a sharp drop towards the end of the year.
During the high volatility of the fourth quarter of 2018, the
most cyclical part of the portfolio, namely financials and
industrials, caused most of this negative performance.
Particularly, ABB did not escape the liquidation waves at the
end of the year despite its business restructuring around
industrial automation and robotics. Schneider, despite a
resilient business model, is suffering from the perception of a
slowdown in its European markets. 3M also suffered from its
exposure to the automotive sector, semiconductors and
China. In the financial sector, BBVA and banks in general are
still struggling to demonstrate that they can transform their
business model to generate returns on equity in excess of their
cost of capital. Standard Chartered is however, well
positioned to take advantage of structurally superior
economic growth in Asia.
More defensive sectors, such as health and food, have slowed
the decline in the portfolio. Nestlé, Unilever and L'Oréal were able to maintain a stable valuation thanks to a steady increase
in their profitability. However, Anheuser-Busch Inbev
experienced strong downward pressure due to its indebted
balance sheet following the acquisition of SAB Miller.
Vestas and Mastercard generated excellent performances
thanks to their good results and strong growth prospects
despite macroeconomic uncertainties
The first signs that the year would not be easy appeared in the
beginning of February: a potential overheating of the US
economy following the sharp drop in corporate taxes in the
context of good economic growth and full employment, and the
signs over sharp wage increases caused the first concerns.
Towards the end of the first quarter, customs measures against
China and several Western allies announced by the Trump
administration contributed to the increase in volatility. In
October, markets started going through a sharp correction,
unprecedented since the great financial crisis of 2008. Investors
first feared the impact of monetary tightening in the US, which
caused a sudden rise in long-term rates, increased political risks
in Europe (Brexit, Italy, Germany, then France) and finally, the
slowdown in the Chinese economy. The implementation of new
tariffs by the US against China, and Chinese retaliatory measures
have had the first impact on the results of the most globalised
companies. Uncertainty about the future of trade policy in this
crucial region has led to a halt in their investment decisions. In
the current context, it was difficult to optimize a production
tool implemented in multiple regions, particularly in the
automotive industry or for major technology players.
Despite the difficult economic environment, European
companies produced a profit growth close to 10%. This growth
is not as spectacular as that of the US companies, but they were
able to take advantage of the significant reduction in their tax
burden from the beginning of 2018.
1. Facebook and Microsoft 2. BBBVA
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ACTIVE PORTFOLIO MANAGEMENT
PEACEBUILDING BUSINESS INDEX
As described on pages 6ff, the Fund invests essentially in
companies that demonstrate a net positive contribution to
peacebuilding. The Peacebuilding Business Index takes the
300 companies with the biggest economic footprint (capital
investment and job creation) in fragile countries and ranks
them according to their contribution to peacebuilding in
fragile countries. Company scores range from 86 per cent for
the company with the highest net contribution (Unilever), to
30 per cent for the company with the lowest score (Facebook)
according to the PBBI. As the table below shows, more than
75 per cent of the companies in the Fund rank in the top 100
and less than 10% of the Fund’s companies rank among the
bottom half. All companies with a score higher than 50% have
a net positive peacebuilding impact and can hence be freely
invested by the Fund. This is the case for the whole portfolio
except for Facebook. We nevertheless decided to invest in
Facebook because the company was significantly undervalued
compared to its growth potential and because our expertise as
engaged shareholders could be more effective to foster
positive changes than simply excluding the company.
Facebook PBBI rating had dropped significantly in net
negative territory due notably to severe controversies around
the use of the platform in Myanmar. But Facebook’s business
model is not fundamentally ill-suited to promote peace and
stability. For instance, the company played an important role
in the Jasmine revolution which inspired similar actions
throughout the Arab world, in a chain reaction which became
known as the Arab Spring. More recently, the Defendamos la
Paz movement, gathering various defenders of the peace
accord in Colombia, was born on WhatsApp. Our investment
decision was also supported by Facebook’s announcement to
recruit a director of human rights policy to work on “conflict
prevention” and “peace-building”. The company will remain
on a constant watchlist and will be divested if we do not
achieve any relevant progress. Therefore, we invested
additional effort towards engaging with the company. Firstly,
we connected with the Facebook Asia and Myanmar team to
discuss their monitoring of hate speech, fake news and fake
accounts. Secondly, the Executive Director of PeaceNexus,
personally wrote to the head of Global Affairs of Facebook
to provide recommendations for improvement and offer
support of the Foundation to implement these. Thirdly, the
Fund joined the investors initiative to prevent the distribution
of objectionable content following the Christchurch shooting
in March 2019. We will closely monitor developments within
Facebook and the uptake of recommendations given to
Facebook by the investor community.
REGIONS AND SECTORS
The majority of companies which have the biggest economic
impact in fragile states – as provided by the PBBI - are based
in Europe. As can be seen below, the Fund has hence a
European overweight compared to global equity indices.
We do not take regional nor sector bets but the quality and
growth bias of our fundamental bottom-up approach will also
result in a natural overweight of Industrial Goods & Services,
Food & Beverage and Technology companies.
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PERFORMANCE
PBBI
ACTIVE PORTFOLIO MANAGEMENT
PORTFOLIO MANAGEMENT
Portfolio as at 31.12.2018 Sector Country Score Ranking Contrib. 2018 In Cadmos since
3M Industrial Goods & Services USA 59% 75 -0.96% 2018
ABB Industrial Goods & Services Switzerland 64% 45 -0.99% 2006
ACCENTURE Industrial Goods & Services Ireland 71% 20 -0.28% 2018
ADIDAS Consumer Discretionary Germany 59% 91 0.16% 2018
ALLIANZ Insurance Germany 55% 136 -0.37% 2018
ALPHABET Technology USA 60% 68 -0.20% 2018
ANHEUSER-BUSH INBEV Food & Beverage Belgium 62% 51 -1.32% 2018
APPLE Technology USA 53% 188 -0.24% 2018
ATLAS COPCO Industrial Goods & Services Sweden 57% 119 -0.46% 2018
AXA SA Insurance France 59% 93 -1.03% 2006
BBVA (Out) Banks Spain 76% 8 -0.95% 2018
BMW Automobiles & Parts Germany 59% 83 -0.82% 2007
COLGATE-PALMOLIVE Personal & Household Goods USA 59% 82 -0.21% 2018
DANONE Food & Beverage France 67% 33 -0.38% 2006
ESSILORLUXOTTICA Health Care France 57% 115 -0.06% 2006
FACEBOOK (New) Technology USA 30% 300 -0.25% 2018
FOMENTO ECONOMICO MEX. Food & Beverage Mexico 72% 16 -0.43% 2014
JOHNSON & JOHNSON Health Care USA 72% 15 -0.61% 2018
KONINKLIJKE PHILIPS Health Care Netherlands 66% 37 -0.42% 2017
LINDE Chemicals Germany 57% 116 0.07% 2008
L'OREAL Personal & Household Goods France 80% 5 0.30% 2006
MASTERCARD Financial Services USA 71% 19 0.46% 2018
MICROSOFT (New) Technology USA 72% 13 -0.13% 2018
NESTLE Food & Beverage Switzerland 81% 2 0.11% 2006
PEPSICO Food & Beverage USA 80% 3 -0.12% 2018
SAP Technology Germany 62% 52 -0.23% 2009
SCHNEIDER ELECTRIC Industrial Goods & Services France 70% 21 -0.60% 2006
SGS Industrial Goods & Services Switzerland 69% 25 -0.44% 2006
SIKA Construction & Materials Switzerland 57% 101 -0.24% 2014
STANDARD CHARTERED Banks Britain 56% 130 -1.32% 2007
TOTAL Oil & Gas France 67% 31 -0.18% 2006
UNILEVER Personal & Household Goods Britain 86% 1 0.29% 2016
VESTAS WIND SYSTEMS Oil & Gas Denmark 51% 223 0.82% 2018
For a complete overview of the investment cases for any portfolio company, please contact us at [email protected]. The Integrated
Performance Reports (IPRs) and the PBBI scorecards are accessible upon requests. The IPR’s provide full details on financial
performances, voting activities and engagement progress. The PBBI Scorecards, provide full details on local peacebuilding practices,
local ESG practice, global ESG policies as well as how the negative and positive news were spread among the PBBI indicators and the
countries. One IPR and PBBI scorecard from the last engagement cycle is available at the end of this report
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ACTIVE OWNERSHIP
VOTING TRENDS
During the period under review we expressed an opinion on
570 items on AGM agendas, stabilising the increase in the
voting decisions. The chart shows that while voting items
per company have increased since 2014, the number of
votes against management has decreased. This is natural due
to increased transparency and regulation, better-prepared
AGMs and governing bodies and more active shareholders
like Cadmos. We have exercised our voting rights since 2006
and observed a paradigm shift in corporate governance in 2014.
It is undeniable that investors like Cadmos have led to improved
corporate governance, particularly among the large European
companies. But much can still be done to ensure the
independence and appropriate mix of attributes and expertise of
some companies’ boards.
MAIN OPPOSITIONS
Of the 570 total votes cast, Cadmos voted against the
management recommendations forty-six times, that is,
in 8.1% of cases. To some extent, this illustrates the
improvements in the governance of Cadmos investee
companies. We however opposed at least one item at 55%
of our companies which is a mark of how seriously we take
our role as active shareholders. The information obtained
from this year’s AGM season continues to sharpen our
insight into the governance of each company. We were able
to vote on all companies of the voting equity securities that
were in the Fund at the time of the AGMs. This means that
we actually exercised 100% of our voting rights of our
portfolio companies, since the AGM’s of Accenture, Apple,
Facebook and Microsoft happened before these companies
entered the Fund.
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ACTIVE OWNERSHIP
DISTRIBUTION OF VOTES AND OPPOSITIONS
In 2018, our main oppositions (twenty-eight of a total
forty-six votes against the management) related to the
structure and independence of the board of directors. After
the AGM, the board is the highest organ of management,
defining the strategy to follow and appointing the senior
management that will apply it. We exercise our voting rights to
support board members which enables the board to increase
its level of competence, independence, diversity and
availability. Five “against the management” votes were linked
to excessive, poorly designed or opaque remuneration
structures, three on capital structure and ten on shareholder’s
rights.
The vast majority of our portfolio companies do, however, not
present controversial governance issues. We vote in favor of all
items for more than 45% of our portfolio companies. We voted
“against management” at only one item for 28% of the
companies. For eight companies3, though, we opposed more
than one of the voting items presented. The majority of
companies that we opposed to at least one resolution were due
to a lack of independence of the board of directors. This was
particularly true for SGS, Sika and Anheuser-Bush Inbev where
a majority of the directors are affiliated with the company. This
raises concern about the objectivity of the board and its ability
to perform its proper oversight role. At Alphabet our
oppositions were linked to “shareholder’s rights” as we
supported four specific shareholder proposals.
OF THE 570 TOTAL VOTES CAST, WE VOTED AGAINST THE MANAGEMENT’S
RECOMMENDATIONS FOURTY-SIX
TIMES, THAT IS, IN 8.1% OF CASES.
3. Alphabet, Anheuser-Bush Inbev, Atlas Copco, BMW, EssilorLuxottica, Fomento
Economico Mexicano, SGS and Sika.
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VOTE
ACTIVE OWNERSHIP
ACTIVE OWNERSHIP
Portfolio as at 31.12.2018 Description Resolutions Against
3M Voted 16 1
ABB Voted 24 1
ACCENTURE Entry after AGM 0 0
ADIDAS Voted 10 0
ALLIANZ Voted 12 0
ALPHABET Voted 20 5
ANHEUSER-BUSH INBEV Voted 20 6
APPLE Entry after AGM 0 0
ATLAS COPCO Voted 27 2
AXA SA Voted 23 0
BBVA (Out) Voted 14 0
BMW Voted 9 3
COLGATE-PALMOLIVE Voted 13 1
DANONE Voted 16 0
ESSILORLUXOTTICA Voted 25 4
FACEBOOK (New) Entry after AGM 0 0
FOMENTO ECONOMICO MEXICANO Voted 8 2
JOHNSON & JOHNSON Voted 15 1
KONINKLIJKE PHILIPS Voted 12 0
LINDE Voted 29 0
L'OREAL Voted 19 1
MASTERCARD Voted 16 0
MICROSOFT (New) Entry after AGM 0 0
NESTLE Voted 28 1
PEPSICO Voted 16 1
SAP Voted 11 0
SCHNEIDER ELECTRIC Voted 18 0
SGS Voted 24 9
SIKA Voted 53 7
STANDARD CHARTERED Voted 28 0
TOTAL Voted 20 1
UNILEVER Voted 25 0
VESTAS WIND SYSTEMS Voted 19 0
For a complete overview of the voting activities for any portfolio company, please contact us at [email protected]. The
Integrated Performance Reports (IPRs) are accessible upon requests. They provide full details on financial performances,
voting activities and engagement progress. One IPR from the last engagement cycle is available at the end of this report.
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AGAINST VOTES
ACTIVE OWNERSHIP
ACTIVE OWNERSHIP
Portfolio as at 31.12.2018 Board of Directors Remuneration Capital Structure Shareholder’s Rights
3M 0 0 0 1
ABB 0 1 0 0
ACCENTURE 0 0 0 0
ADIDAS 0 0 0 0
ALLIANZ 0 0 0 0
ALPHABET 1 0 0 4
ANHEUSER-BUSH INBEV 5 1 0 0
APPLE 0 0 0 0
ATLAS COPCO 2 0 0 0
AXA SA 0 0 0 0
BBVA (Out) 0 0 0 0
BMW 2 1 0 0
COLGATE-PALMOLIVE 0 0 0 1
DANONE 0 0 0 0
ESSILORLUXOTTICA 1 2 1 0
FACEBOOK (New) 0 0 0 0
FOMENTO ECONOMICO MEXICANO 1 0 1 0
JOHNSON & JOHNSON 0 0 0 1
KONINKLIJKE PHILIPS 0 0 0 0
LINDE 0 0 0 0
L'OREAL 0 0 0 1
MASTERCARD 0 0 0 0
MICROSOFT (New) 0 0 0 0
NESTLE 0 0 0 1
PEPSICO 0 0 0 1
SAP 0 0 0 0
SCHNEIDER ELECTRIC 0 0 0 0
SGS 9 0 0 0
SIKA 7 0 0 0
STANDARD CHARTERED 0 0 0 0
TOTAL 0 0 1 0
UNILEVER 0 0 0 0
VESTAS WIND SYSTEMS 0 0 0 0
For a complete overview of the voting activities for any portfolio company, please contact us at [email protected]. The Integrated
Performance Reports (IPRs) are accessible upon requests. They provide full details on financial performances, voting activities and
engagement progress. One IPR from the last engagement cycle is available at the end of this report.
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ACTIVE ENGAGEMENT AND IMPACT
A) ENGAGEMENT FOR THE STRATEGIC INTEGRATION OF SUSTAINABILITY INTO THE BUSINESS MODEL - ACHIEVEMENTS
We already engaged with twenty-one companies in the Fund in this first engagement cycle through six on-site visits
and thirteen conference calls. Together, these companies represent 66% of the thirty-two that we assessed. Our
engagement targets for the Cadmos Peace Investment Fund are ambitious. The first target is to create a dialogue with each
company within three years. We will be able to monitor this first indicator in 2020. We are surprised by the high rate of trust
we reached already in this first engagement cycle and the quality of the peacebuilding dialogues we held with these companies.
We will monitor their implementation of our recommendations systematically on a yearly basis.
To provide a transparent measure of the impact of our engagement with the companies, we measure the engagement level of
each company, in order to evaluate our engagement progress. Only when the company reaches level 5, signifying that it has
acted on one of our recommendations, we consider that we have made the desired impact as responsible shareholders. In
particular, last briefing's recommendation to provide data on most KPI’s for five consecutive years – which helps to see progress
or decrease - was taken into consideration and is now available in SGS’ sustainability report. Previous year’s recommendation
to make relevant policy documents of EssilorLuxottica publicly available was taken up in the case of the Code of Ethics which
was released in 2018. L'Oréal has decided to monitor its CO2 footprint by applying science-backed targets and being in line
with previous year's recommendation.
This objective will be measurable only in 2022, but if we consider companies from the Fund which have been in the
Cadmos universe since 2013, this objective would be reached by now. The table above shows indeed the fourteen
portfolio companies (93% of long-term holdings) that have implemented our recommendations and improved on at
least one weak point raised in the past five years. During the period under review, eight companies acted on our
recommendations and improved on at least one weak point that had been raised the year before. They are ABB,
EssilorLuxottica, L’Oréal, Nestlé, Schneider Electric, SGS, Sika and Standard Chartered. When companies have shown
improvements in multiple years such as EssilorLuxottica, Nestlé, L’Oréal and many more, they are shown on the most recent
year. Altogether, going back to 2013, we have recorded 37 instances of positive engagement. This is 37 companies that have
improved upon a specific point in response to the suggestions provided by Cadmos.
DURING THE PAST FIVE YEARS, 14 COMPANIES IMPLEMENTED OUR RECOMMENDATIONS AND
IMPROVED ON WEAK POINTS RAISED THE
PREVIOUS YEAR.
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ACTIVE ENGAGEMENT AND IMPACT
SELECTION OF MATERIAL TOPICS
Our recommendations are formulated on the basis of
identified gaps which become visible through our
systematic yearly assessments. We try to avoid
standardized assessment which may not apply to certain
sectors or companies. Together with our external experts,
we assess key material topics for each company according
to their core business activities. For the Cadmos
European Engagement Fund, three key topics stand out
as the most financially material to the universe of
companies in the Fund: which are “Product Social
Impact”, “Product Environmental Impact” and
“Business Integrity and Compliance”.
“Product social impact”, concerns 70% of the companies
and has been the most important issue as company’s
products and services can positively or negatively affect
its customers directly with regard to their physical, mental
and spiritual well-being, or as a whole, in relation to their
integrity, dignity or heritage. Companies must exercise
due care and foresight in managing their products and
services throughout their life cycle, to prevent
controversies and foster positive impacts.
On the environmental side, “product environmental impact”,
was considered a key material topic for about 50% of the
companies. Companies must adopt a precautionary approach to
local or global environmental challenges and promote
environmental responsibility, resource efficiency and pollution
prevention throughout the life cycle of their products and
services.
“Business integrity and compliance”, which is important for any
firm, was selected as a key material topic for 50% of the
companies in the Fund. Companies must comply with a variety
of external rules at national, regional and global levels, as well as
their own internal systems of control. Compliance concerns the
company’s ability to act upon according to these rules and
prevent employees from crossing the line to reach business
targets, on purpose or through negligence. Dishonest or illegal
practices such as bribery, money laundering, collusion, tax
evasion, fraud and insider trading can harm stakeholders and
the company itself. Companies must therefore make every
reasonable effort to ensure compliance and demonstrate
integrity, good governance, and responsible business practices.
50%
10%
10%
70%10%
20%
10%
10%
50%
Product environmental impact
Climate change impact
Supplier environmental impact
Product social impact
Impact on communities
Supplier social impact
Core labor standards compliance
Diversity and employee loyalty
Business integrity and compliance
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ACTIVE ENGAGEMENT AND IMPACT
ASSESSMENT AND REPORTING
The portfolio companies’ average score for preparedness on key topics is 77%. The decrease is due to the fact that we only assessed
ten quite advanced pilot companies in 2017-2018. A score of 100 % reflects absolute best practice by all the companies in the
Fund in relation to their respective key topics, for all five indicators (materiality, commitment and strategy, objective and actions,
indicators and monitoring, and achievements).
About 60% of the portfolio companies have scores above 80 % and are already well positioned to manage their key material
topics. There are plenty of opportunities for these companies to progress and even more so for the 40% remaining.
The portfolio companies’ average score for quality of reporting is 72%. A score of 100% reflects absolute best practice by all the
companies that we assessed, for all six indicators (accessibility, clarity, comparability, accuracy, reliability, and integration).
Today 31% of the companies have scores above 80 % and already count among the businesses that are among the best at
communicating about their ESG challenges. ESG communication is becoming increasingly complex and heavy. Companies are
increasingly following-up on our progress recommendations linked to better integration between the sustainability and financial
information. Nestlé for example reduced its CSV report from previously 179 pages to 113 and also published a 16 pages extract.
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0 10 20 30 40 50 60 70 80 90 100
QUALITY OF REPORTING
Accessibility Clarity Comparability Accuracy Reliability Integration
0
1
2
3Materiality
Committment Strategy
Objectives ActionsIndicators Monitoring
Achievements
PREPAREDNESS ON KEY TOPICS
2018-2019
2017-2018
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ACTIVE ENGAGEMENT AND IMPACT
The portfolio companies’ average score for quality of sustainability organization is 83%. A score of 100% would reflect absolute
best practice by all the companies that we assessed, for all four indicators (strategy integration, responsibility, employee
inclusiveness, and stakeholder inclusiveness).
Today 81% of the portfolio companies have scores above 80% and already count among the businesses that are best at
integrating sustainability into their organization. As mentioned in the foreword, we nevertheless view the true integration of
sustainability factors into the heart of a company’s strategy and daily operations as the next major milestone.
The portfolio companies’ average score for ability to report according to the principal reporting or impact frameworks is 50%.
A score of 100 % reflects absolute best practice by all the companies that we assessed, for all four most widely adopted
frameworks (UN Global Compact, Sustainable Development Goals, UN Guiding Principles, and Global Reporting Indicators).
63% of the portfolio companies have scores above 50% and are already among the businesses communicating broadly by means
of these frameworks. We do not expect companies to sign-up or follow all these frameworks but expect them to coherently
reference them according to their overall strategy and ambitions.
The portfolio companies’ average score on “Peacebuilding embeddedness” is 2.0. This illustrates that a majority of the
companies provide detailed information on peacebuilding relevant topics but do not link these initiatives to their activities in
fragile and conflict affected countries (score 3).
We are encouraging conflict-sensitive and peace promoting business practices among our portfolio companies with the support
of our social impact experts, including reporting on this topic.
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0 0.5 1 1.5 2 2.5 3
SDG
UNGP
GRI
UNGC
SUSTAINABILITY FRAMEWORKS
0 0.5 1 1.5 2 2.5 3
Decent working conditions
Diversity/Non-discrimination
Due diligence process
Capacity building
Local engagement
Global/sectorial engagement
PEACEBUILDING EMBEDDEDNESS
0 0.5 1 1.5 2 2.5 3
Strategy
Responsibility
Implementation
Stakeholder Inclusiveness
SUSTAINABILITY ORGANISATION
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ACTIVE ENGAGEMENT AND IMPACT
SHAREHOLDER DIALOGUE
The Cadmos Peace Investment Fund mainly invests in companies that already show above-average sensitivity to financially
material sustainability topics. Based on the gaps identified by the assessment, we nevertheless target to formulate at least three
practical recommendations that we believe will have an impact on the companies’ future. Here, we provide two examples of
gaps and recommendations presented during our engagement meetings.
BASED ON THE ASSESSMENT, WE FORMULATE RECOMMENDATIONS
THAT WE BELIEVE WOULD HAVE AN
IMPACT ON THE COMPANIES FUTURE
WHILE BEING EASY TO IMPLEMENT.
Gap 1: Though the company has identified the use of resources and the prevention of negative impacts of its production and products to natural environment, neither specific objectives nor useful indicators are published.
Recommendation 1: Essilor-Luxottica is using different chemical substances in the production which might have ecotoxicological effects if accidentally released or negligently used. As unintended spills happened during the reporting period, the company should consider defining appropriate targets and related KPIs to be disclosed. Gap 2: The specific risks and opportunities of the two topics compliance and business ethics, which are highlighted in Essilor’s Registration Document