by Nawar Alsaadi
A short history of NEI’s efforts to make a positive impact through active investing.
This is the first of an NEI blog series called NEI Engagement Chronicles. Throughout the year we will explore NEI’s corporate engagement history, NEI’s drive to engage with portfolio companies, the role engagement can play in the energy transition, and where we plan to focus our engagement efforts in the months and years to come.
The understanding that investors must play a major role in addressing the world’s sustainability challenges is increasingly seen as a given. In particular, the concept of engagement—the idea that investors can use their rights as shareholders to encourage companies to improve their sustainability performance—has emerged as the most effective tool for private investors to fulfill this responsibility. Throughout the world, shareholder engagement has been embedded in investment stewardship codes and financial markets regulation.
The early years
The idea that shareholders can be a force for good is nothing new to NEI. We have been active investors since our early days as Northwest Investments and Ethical Investments, the predecessor to NEI Investments. As far back as the year 2000, we engaged with companies such as Barrick Gold, West Fraser, and Manulife on their environmental performance. We also engaged with retail giants like Walmart on potential human rights abuses in their supply chains. In 2001, the year we formally launched our ESG engagement program, we engaged with the likes of Morgan Stanley and Citigroup around human rights risks in connection with their finance activities in China.
Fast forward 5 years to another milestone in our corporate engagement work: 2006, the year we joined the UN-supported Principles for Responsible Investment (PRI) upon its formation. That year, we engaged with major grocers such as Loblaw, Metro and Sobeys on the labelling of genetically modified foods. In the same year, we sent 283 letters to TSX-listed companies expressing our concerns with excessive executive compensation and the short-term nature of many executive pay packages. The issues we raised became front and centre two years later when the 2008 financial crisis unfolded, and poorly structured compensation packages were identified as a key contributing factor.
Human rights, diversity, income inequality, ESG disclosure, and climate change
In 2009, we raised the issue of Indigenous land rights when we engaged with Enbridge about the now-cancelled Northern Gateway pipeline project on the need for respecting the UN Declaration on the Rights of Indigenous Peoples. Also that year, we engaged with Google (now operating under parent company Alphabet) on critical human rights and digital privacy issues—and we’re still talking to Big Tech about human rights risks today ). In 2012, we were one of the first companies to engage with the TSX on joining the Sustainable Stock Exchanges Initiative, which they joined a few years later.
In 2013 we engaged with Bombardier on supply chain disclosure around conflict minerals and the need for them to align with the U.S. Security and Exchange Commission regulations on that front. Later that year, concerned about the rising income inequality within our society, NEI filed shareholder resolutions with 5 of the largest Canadian banks, calling for them to consider vertical pay ratios such as the ratio between the lowest and highest paid employees when setting executive compensation (NEI withdrew its resolutions after the banks agreed to commission an independent study on the issue). Following NEI’s action, the largest Canadian banks, commencing with RBC, started incorporating vertical metrics in their executive compensation structures in subsequent years.
In 2014 we engaged with Dollarama for the lack of gender diversity on their board, and witnessed the company elect two women in 2015 and 2018. Also that year, we engaged with CGI Group on enhancing their ESG disclosure, and later expanded that engagement to board independence, which CGI has since addressed. We engaged with Hydro One in 2017 on improving their reporting to the Carbon Disclosure Project or CDP—an initiative we helped launch in 2007—with positive results. And in that same year, after a multi-year engagement, we won a commitment from Suncor to reduce the carbon intensity of their emissions by 30% by 2030.
Plastic pollution, GHG emissions standards, equitable access to medicine
In 2018 we worked with the Plastic Solutions Investor Alliance to engage with consumer goods companies like Unilever and PepsiCo on plastic packaging and won substantial commitments for reduction in virgin plastic use. Working with fellow shareholders in 2019, we wrote to General Motors expressing our concern about its efforts to weaken the U.S. Corporate Average Fuel Economy and greenhouse gas vehicle standards. One year later, General Motors revealed a new platform for electric cars and committed US$20 billion in capital to electric mobility.
On another front, the global pandemic inspired us to step up our efforts on access to medicines. We’re currently working with the Interfaith Center on Corporate Responsibility and Access to Medicine Foundation to engage with pharmaceutical companies such as Pfizer, Johnson & Johnson, AstraZeneca, Merck, and Eli Lilly on a wide range of issues including equitable access to medicine and increased access to COVID-19 vaccines and treatments.
All these engagements have been motivated by a desire to give our investors an opportunity to have a positive impact on the world. Our inclination to engage with our portfolio companies is also motivated by a deep understanding of the direct link between corporate sustainability and financial results. It’s our conviction—a conviction shared by many of our responsible investing peers—that companies can only thrive over the long term if they act responsibly toward people and the planet today. At NEI, engagement is not just a tool for our investors to do good. It is also a tool that empowers our investors to do well.
In the next installment of NEI Engagement Chronicles, we will take a deeper look at the interplay between engagement and divestment, and demonstrate why we believe engaging our portfolio companies on ESG issues is the superior alternative.