Morgan Stanley: Engage Winter 2023

In this edition:

Testing the water
As a follow up to an engagement on water use with a brewery we hold, our Head of ESG took the opportunity to conduct a further fact-finding engagement, visiting the company’s “best in class” brewery in the water-stressed region of North Mexico. Having identified water use as a financially material risk for the company, our engagement enabled us to gain on-the-ground insights into the measures used by the company and brewery to manage the risks associated with water scarcity.

Investing in people
Diversity, equity & inclusion (DEI) is both a financially material risk and opportunity for a European multinational software company we hold. We met with their Chief Diversity & Inclusion Officer to discuss how they are identifying internal candidates and supporting development to ensure female employees are in a better position to be promoted, enquire about data disclosure around DEI, and discuss the setting of effective targets around racial diversity. Overall, we believe that their new Chief Diversity & Inclusion Officer appears to be an effective and focused leader, driving the right DEI strategy and culture in the business.

Climate change – can insurers stand the heat?
Record temperatures and recent wildfires have brought further evidence that the climate is changing. With weather patterns more extreme, unpredictable and therefore costly, how will the insurance industry adapt? And what about re-insurers? While the protection gap may present a financially material opportunity for insurance companies, increasing insurance coverage increases the liabilities of those doing the insuring. The insurance companies control an essential aspect however – price, which we believe is one way they can manage this financial risk.

The devil is in the detail: carbon targets 101
A look at the key differences between carbon neutral and Net Zero, the basic building blocks involved in setting carbon reduction targets and why we believe targets approved by the Science Based Targets initiative (SBTi) are credible and consistent.

Executive pay: “Show me the incentive and I will show you the outcome”
As long-term investors, we want the companies we invest in to have pay plans in place that encourage longer-term thinking over short-term opportunism. We created the Pay X-Ray as a framework for a comprehensive and rigorous analysis of company pay schemes. In this piece we talk through what we do and don’t like to see in executive pay plans, as well as giving case study examples of how we use proxy voting to emphasise our point.