Purpose

This Engagement Policy sets out how European and Global Advisers LLP undertakes stewardship and shareholder engagement for its discretionary equity investment strategies. This policy has been written in accordance with the requirements of Directive (EU) 2017/828 and its implementing measures (together, the “Shareholder Rights Directive II”).

Introduction

European and Global Adviser LLP interprets its fiduciary duty to its clients as an effort to maximise the value of their investments over the long-term as well as the short-term, and fulfillment of its stewardship responsibilities not only by participating in shareholder votes but also by actively engaging with company management. EGA believes that faster growth and higher long-term returns can be achieved by implementing sustainable business practices in its own business, as well as in the companies that it invests in.

EGA has developed a deep understanding of the complex relationship between business, industry, and society and the increasing number of feedback loops between them. It recognises that companies in which it invests are increasingly impacted by technological and regulatory changes, as well as changes in consumer behavior. It, therefore, seeks to incorporate an assessment of material environmental and social issues, as well as the quality of governance into its investment research.

How EGA monitors investee companies

EGA investment professionals monitor the public statements of investee companies through financial information platforms like Bloomberg, financial statements and regulatory announcements, reports & accounts, results meetings, and capital markets days.

Meetings with the management teams of the companies in which it invests, through one-to-one meetings and site visits, are an integral part of EGA’s fundamental investment process. EGA believes a regular dialogue with investee companies plays an important role in stewardship.

Meetings with the management teams of the companies in which it invests, through one-to-one meetings and site visits, are an integral part of EGA’s fundamental investment process. EGA believes a regular dialogue with investee companies plays an important role in stewardship.

• Company financial reports, regulatory filings, press releases, and presentations;
• Information platforms including Bloomberg;
• Industry conferences and trade shows;
• Sell-side research;
• Research reports; and
• Data from ESG research providers

Strategy and capital structure

EGA recognises that minority equity investors do not have control over a company’s strategy, capital allocation or capital structure. Decision-making authority lies with the company’s management and ultimately its board of directors, and shareholders have influence through the periodic election or re-election of board members or through votes on specific resolutions at annual or extraordinary general meetings. Decisions that can have a material impact on long-term shareholder value can be made without a shareholder vote via an AGM or EGM, and in any case, there may be pre-existing shareholders with effective or majority voting control.

Consequently, EGA’s approach is proactive. Investment opportunities (e.g. price action, regulatory changes, changes in economic or political outlook, etc.) do sometimes arise when management teams are unavailable (e.g. in close period), but generally, EGA’s investment professionals meet the management team of a company before investing in it, as well as scrutinising their public statements. This allows EGA’s investment professionals to understand management’s strategy and their thought processes around the use of capital and financial leverage. EGA’s investment professionals monitor the strategy and capital structure of investee companies, analysing financial statements as they are produced, assessing the execution of a stated strategy, and paying close attention to events like capital investment decisions, shareholder returns, acquisitions, and divestments. They also seek to understand the important features of capital structure like the term structure of borrowing, access to working capital, and financial obligations that may not appear in their entirety on the balance sheet, and monitor changes in them over time. EGA’s investment professionals pay close attention to changes in governance structures (board composition, voting rights, pre-emption rights, etc) and management incentives. The aim is to understand EGA’s ability to influence corporate decision-making and whether the interests of management are aligned with those of EGA’s clients. The interplay between governance and environmental and social issues is discussed separately in the next section, but in practice, EGA sees them as entirely interlinked with decisions about strategy and capital.

Environmental, social and governance (“ESG”) issues

EGA’s sustainable investment philosophy stems from a belief that long-term structural changes such as globalisation, inequality, and climate change present both financial risks and market opportunities for the companies that it invests in. EGA incorporates an assessment of material environmental and social issues, as well as the quality of governance practices, into its investment research and these also inform its stewardship activities. EGA believes that the materiality of individual ESG factors differs by company, sector, and region, and consequently does not apply a “one size fits all” approach to risk assessment. Through the establishment of a robust analytical framework, training, risk assessment, and engagement, EGA’s investment professionals aim to systematically incorporate ESG.

How EGA engages with investee companies

The decision to engage with the management of an investee company is primarily based on what EGA investment professionals believe will maximise shareholder value in the long-term, specifically the value of its clients’ investments. These engagements are undertaken by the same EGA investment professionals that perform financial analysis, as part of integrated ESG research. Investment professionals may engage with company management on a variety of issues, including ESG matters that present a potential material risk to a company’s financial performance. On occasion, companies seek EGA’s input on a range of issues, and EGA investment professionals use such opportunities to work with companies and, when permitted by and consistent with local regulation, may play an active role in seeking to effect changes that maximise shareholder value. EGA believes that its investment professionals are in the best position to evaluate the potential impact that ESG issues or the outcome of a given proposal will have on long-term shareholder value. As such, all of EGA’s engagement activities are the responsibility of investment professionals and are fully integrated into its investment processes, rather than being delegated to stewardship specialists. The normal methods through which EGA engages with companies are:

• ongoing dialogues with the company management through regular meetings, visits, and telephone calls during which EGA investment professionals discuss and pose questions on operational, strategic, and other management issues and, where appropriate, will offer their own opinions and comments, based on their fiduciary duty to EGA’s clients; and
• proxy voting; where clients delegate the responsibility to vote proxies, EGA, as a fiduciary, is obligated to vote proxies in the best interests of its clients.

Communication with other shareholders

EGA’s investment professionals regularly engage with companies seeking to improve shareholder value, specifically the value of clients’ investments. Engagement activities are generally conducted on a one-to-one basis with company management or members of the board of directors. Collaborating with other investors can add value on specific issues and on rare occasions, EGA may be willing to participate in collective engagements where it believes it is in its clients’ best interests. Key factors EGA takes into consideration in deciding whether to participate in collective engagement include whether:

• the engagement objectives of the collective group are consistent with EGA’s objectives;
• engaging as a part of a group will be more successful than engaging individually; and
• engaging as a group could be interpreted as having “acted in concert” with another financial institution. If EGA’s Legal & Compliance team believes that this may be the case EGA will not participate.

Conflicts

EGA has conflicts of interest policies that apply to its engagement and proxy voting activity.

Transparency

EGA will annually disclose how this Engagement Policy has been implemented, including:

• a description of its voting behavior;
• an explanation of the most significant votes;
• the use of the services of proxy advisors; and
• the use of the services of proxy advisors; and

Additional disclosures to institutional clients
As required by applicable law, EGA will provide certain of its institutional clients with additional disclosures regarding how its investment strategy:

• complies with the arrangements in place with those clients; and
• contributes to the medium to the long-term performance of the assets of that institutional investor

Review

The Engagement Policy is reviewed and approved annually or more frequently as needed and is publicly available on EGA’s website.