Un enjeu majeur pour l investissement long terme MIROVA ENGAGEMENT REPORT

Transcription

1 Un enjeu majeur pour l investissement long terme MIROVA ENGAGEMENT REPORT [Texte] July 2015

2 FOREWORD Philippe Zaouati, Chief Executive Officer, Mirova Hervé Guez, Director, Responsible Investment Research Mirova has placed issues of sustainable development at the heart of its investment strategy in order to deliver long-term, sustainable performance for its clients. Taking these issues into account allows savings to have indirect positive effects on the economy. In order to multiply the effects of our choices as an individual investor, we adopt a committed approach to collaborative engagement. Our engagement policy is developed across different asset classes (equity, fixed income and infrastructure), and along three main axes: the industry level, the regulatory level, and the company level. At the industry level, the goal is to encourage, along with our peers, the best practices of responsible investment. In 2014, we notably pushed for greater consideration of climatechange related concerns in investment in equities and fixed income. Thus, whether in the context of the Green Bond Principles (ICMA), or initiatives like the Montreal Carbon Pledge (PRI) and the Portfolio Decarbonization Coalition (UNEP Finance Initiative), we promote an exacting approach to measuring the carbon footprint of investments that assesses both the emissions generated and those avoided by the companies financed. regulations (i.e. prudential requirements, public financing incentives, taxation of savings, etc.) that provide adequate signals for responsible savers. At the company level, we use our role as investors of capital to encourage the best environmental, social and governance practices amongst companies. To be more effective in each of these areas, we seek out collaborative participation, since it is only through the mobilization of the greatest number that we can tackle the major challenges with which we are collectively confronted. At our own individual level, in 2015, we will contribute to the best of our ability to making the COP 21 on climate a success. Happy reading! At the regulatory level, our aim is to raise awareness of the fact that the systemic sustainability issues we face can no longer be ignored, as is still largely the case. We are notably working to encourage the implementation of labels that will facilitate the emergence of 2

3 CONTENTS 1 Engagement: An active and responsible approach to creating value 2 Engagement at a glance Sustainable equities P. 8 Green bond initiatives P. 20 Responsible infrastructure P Collaborative engagement initiatives Mirova Engagement Platform P. 25 PRI Engagement Initiatives P. 35 Investor statement P Engagement initiatives through stakeholder groups Public policy engagement P Exerting influence through voting rights Engagement through proxy voting P. 47 3

4 1 ENGAGEMENT: AN ACTIVE AND RESPONSIBLE APPROACH TO CREATING VALUE THE IMPORTANCE OF ENGAGEMENT FOR RESPONSIBLE INVESTORS Both environmental factors (resource depletion, climate change, water scarcity, plummeting biodiversity, pollution, etc.) and human development concerns (food safety, access to health and development, working conditions, inequality, etc.) are increasingly exerting pressure on companies to rethink their long-term development models, their relationships with stakeholders and their interactions with the environment. The issues of social responsibility thus fall in the economic domain, and not exclusively the ethical sphere. Acknowledging their reality reflects not only on the quality of a company s management, its capacity to plan for the future and manage its risks, but also its ability to create long-term value. In this new context, investors have a responsibility toward their clients to protect the value of investments by ensuring that companies in which they invest are being run to deliver sustainable growth over the long term. Mirova, as a responsible investor, considers engagement as an important axis of its investment policy and uses its voice to encourage companies to integrate sustainability issues into their business models and to adopt best corporate social responsibility (CSR) and governance practices. MIROVA ENGAGEMENT STRATEGY Mirova has, over the course of its 30 years of experience in responsible investment, MIROVA ENGAGEMENT STRATEGY 4

5 developed immense proficiency in the analysis of environmental, social and governance stakes, the exercise of voting rights, and dialogue with businesses. As engagement takes on a growing role as part of the fiduciary duties of institutional investors, Mirova has defined a global engagement strategy at different levels with the aim of creating value Engagement may take several forms according to the desired result and is implemented through direct actions that target issuers via dialogue, and indirect actions that take the form of lobbying or participation in advisory initiatives. These engagement strategies can be implemented individually or in combination, either independently or in a collaborative context. Their deployment depends on the issues involved, the objectives of the engagement, and the leverage available for improving companies CSR and governance practices. As part of its engagement strategy, Mirova has launched its own collaborative engagement platform made up of Mirova experts and client representatives in order to create a lever to influence companies practices by conducting close dialogue around highly controversial issues. Mirova s overall attitude towards engagement rests on building extensive knowledge and understanding of the myriad and complex issues of sustainable development. Thus Mirova has cultivated a high degree of expertise in identifying and analyzing ESG issues. Our understanding of these issues and their applicability to broad economic sectors is described in the factsheets ESG Issues and 8 themes for sustainable investment solutions available on the Mirova website. Various forms of engagement comprising the Mirova approach: Focused Engagement is undertaken on highly controversial issues in conjunction with other investors in order to obtain, within a predetermined timeframe, specific and measurable changes on the part of issuers. On-going Engagement aims at engaging with the primary holdings of Mirova and its clients in order to promote ESG practices. This dialogue is specifically inscribed within the context of our ESG analysis and the exercise of voting rights. Exercise of Voting Rights for all securities held in Mirova funds, according to a responsible voting policy which aims to promote best CSR and governance practices. Engagement at the industry level by contributing to different types of professional bodies, and through active participation in engagement initiatives launched by professional bodies within the finance industry. Responsible Lobbying. Both on its own and through its participation in several professional bodies, Mirova maintains a dialogue with national and transnational regulators to support the emergence of regulations that encourage the best ESG practices. 5

6 2 ENGAGEMENT AT A GLANCE 1I SUSTAINABLE EQUITIES Mirova s engagement approach to sustainable equities aims to promote the development of sustainable opportunities through products and services proposed by companies while improving environmental, social and governance practices. For the primary holdings of Mirova and its clients, the research teams is regularly in contact with issuers through one to one, interviews, conference call, etc., in order to promote CSR practices. The dialogue with company representatives is specifically inscribed within the context of our analysis, permitting an evaluation of issuers ESG practices prior to the exercise of voting rights at a general meeting. Over the course of 2014, Mirova engaged with 163 companies held in its clients funds on a range of 610 environmental, social and governance issues. In accordance with its investment strategy, which aims to select companies that provide sustainable opportunities through their products or services, Mirova conducted 82 engagement actions in 2014 focused on the development of sustainability opportunities, and 528 engagement actions were also conducted on sustainability and governance risks with the aim of promoting good CSR and governance practices. 163 equities issuers targeted 82 engagement actions on sustainability opportunities This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 6

7 1.1 Sustainable equities: environmental & social engagement issues by sector Through its solid team of 11 SRI analysts, Mirova carries out a sustained dialogue with companies across a multitude of sectors, and engages these companies on improving their transparency and sustainability performance. Companies are grouped under eight common themes, each of them facing specific risks and opportunities related to their sustainability management: Building & Cities 11 companies targeted The building and cities sector is made up of companies operating in various industries: building materials, real estate, distribution, construction and engineering services. Although some companies provide solutions aiming at reducing key environmental impacts such as energy efficiency and carbon emissions, their offering of sustainability-oriented solutions remains limited. In addition, companies generally display limited communication around such product offerings. Transparency is also an area of improvement for the sector in terms of reporting of key sustainability risks, especially as far as social issues are concerned, like health and safety in the supply chain and prior consultation with local communities. Therefore, these themes represented the main axes of engagement with the companies within the building and cities sector during the 2014 engagement campaign and will continue to be our area of focus for engagement with companies in the sector. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 7

8 Consumption 20 companies targeted Companies in the consumption sector come from different industries: textile & clothing, hygiene & personal care, food retail, and food manufacturing. While the companies level of transparency varies due to several factors, in general, companies can still do more from providing more relevant information on the environmental and social risks linked with their operations to publishing reports measuring their sustainability performance. The supply chain, in particular, presents high environmental and human rights risks, which arise from the procurement of raw materials (in particular agricultural inputs for food companies) and the manufacturing and production of finished goods (most prominent in the textile industry). Finally, the development of sustainable products such as healthy, affordable, or ecological products, and communication on their social and/or environmental value is generally an area for improvement in the sector. Therefore, we will be focusing our engagement in the sector on these issues in This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 8

9 Energy 13 companies targeted The energy sector encompasses companies within the oil and gas, utility and industrial sectors. These companies are all poised to greatly benefit from various opportunities deriving from the low-carbon economy. However, they are also subject to high environmental and safety risks, which vary in severity according primarily to the sector in which the companies operate. Within the energy sector, companies generally exhibit a good level of disclosure around safety performance as well as carbon and air pollutant emissions. However, when it comes to human rights management and the degree of investment in the renewable energy space, oil and gas companies need to provide better transparency. Therefore we focus our engagement efforts on the adoption of ambitious climate change mitigation plans and better transparency concerning safety risks, particularly surrounding nuclear power management. With industrial companies, on the other hand, we encourage the development of products providing solutions to sustainability issues such as renewables, energy efficiency and smart grids, among others, together with improved communication and measurement of the actual sustainable benefit associated with these solutions. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 9

10 Finance 4 companies targeted The finance sector encompasses companies such as banks, insurers and asset managers. These companies mostly face indirect environmental and social impacts. As such, most of our engagement deals with the integration of environmental and social criteria into investing and financing activities. With regard to investment practices, our engagement aims at understanding companies broader approach to managing ESG risks, as well as their exclusion policy. We believe companies with socially responsible investment (SRI) practices are best poised to apply ESG considerations to their global strategy. In relation to project financing, which primarily addresses reputational risks that might arise from controversial projects, our view is that the Equator Principles, which are the mainstream guidelines for project financing, are not restrictive enough. Therefore, through our engagement process, we encourage companies to go beyond the Equator Principles guidelines and adopt environmental and social guidelines encompassing all financing activities, including the financing of projects below $10 million, but also other transactions such as products and services pertaining to equity and debt capital markets, mergers and acquisitions, or acquisition finance. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 10

11 Health 8 companies targeted The vast majority of pharmaceutical companies have strategies concerning access to healthcare, both in developed and developing countries. As such, companies in the healthcare sector are set to benefit society through their services by default. However, the depth and effectiveness of these strategies vary across the sector. To measure health business commitments on this axis, the establishment of clear, transparent and audited indicators is needed, such as dedicated investments, the number of patients and the revenues generated through this approach. At this stage, no company communicates on these aspects. In addition, marketing practices within the industry remain a sensitive issue, as is demonstrated by the number of accusations and controversies surrounding communication on side effects, bribery and corruption, as well as transparency in clinical trials. Therefore, we focus our engagement in the sector primarily on mapping corruption risks, improving disclosure concerning relations with health professionals, committing to reliable and objective marketing of medicines, and publication of all clinical trials. 11

12 ICT 21 companies targeted The level of transparency concerning sustainability impacts varies widely across the sector. While some companies do not publish sustainable development reports, others report limited information on their products and services that specifically answer to sustainable development issues, such as energy efficiency, smart cities, and mobile banking, among others. Management of social issues also varies across the sector. Companies in the hardware industry need to be wary of potential human rights violations and poor working conditions throughout their supply chain, whereas companies within the telecommunications industry are primarily exposed to challenges related to employee relations due to the frequency of restructuring programmes in the sector. In addition, for telecommunications companies and those that rely on software and the sale of user data, data protection, privacy and security are also issues on which we demand better disclosure. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 12

13 Mobility 13 companies targeted Transport is responsible for almost 30% of greenhouse gas emissions. Therefore, "green mobility", i.e. the reduction of greenhouse gas emissions, is the main sustainability issue for the sector. In the automotive sector, this issue is reflected in investment in disruptive technologies, lighter cars, as well as car-sharing initiatives and improved energy efficiency of internal combustion engines. We thus encourage companies to communicate the average CO2 emissions of all vehicles sold worldwide per year, and the share of "green investment" within group-wide R&D by technological area (improvement of internal combustion engines, lighter vehicles, electric vehicles, etc.). Another issue within this sector is the increase in production in emerging countries, which exposes companies to the risks of poor working conditions in their factories and those of suppliers. As for companies within the aerospace and defence sectors, they are exposed to the risk of the misuse of their military products against civilian populations. Therefore, we encourage companies in this sector to improve transparency concerning the destination of exports and re-exports of their products, the adoption of a policy that forbids commercialization of these products in undemocratic states, as well as better disclosure of the systems that ensure traceability of the companies sales. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 13

14 Resources 10 companies targeted Companies in this sector have very different profiles, depending on whether they are involved in forestry and agribusiness, waste and water management, mining or diversified chemical businesses. Chemical companies have important levers to improve resource efficiency through their products but are also increasingly challenged on their product safety through tightening regulations and public awareness. This is a key area for engagement with these companies, which demonstrate a good level of transparency overall, but still offer limited visibility on their most controversial products. On the other hand, companies involved in waste, water and agribusiness are well positioned to contribute to sustainable food and water security and to a circular economy. Providing a better understanding of their ability to reach developing countries and to ensure that their operations do not negatively impact local communities is an area for engagement in the long run. Finally, mining companies face significant risks through the environmental impact of their operations as well as their impact on local communities in terms of human rights and work safety. As a significant number of controversies still arise around these issues, we encourage the adoption of the voluntary principles for human rights in business as well as grievance mechanisms in line with the UNGC standards for businesses. We also encourage better transparency concerning community consultation programs. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 14

15 Governance issues 156 companies targeted Governance issues are relatively similar across all sectors. In 2014, our dialogue with companies focused particularly on: Integration of environmental and social criteria in remuneration: with the objective of supporting the alignment of executive interests with the long-term development of the company, we have encouraged the inclusion of extra-financial performance indicators in executive remuneration policies. These indicators should be adapted to the issues within the sector and target actual performance for the company and its peers. Strengthening of the link between remuneration and long-term performance: with the aim of understanding executive remuneration policy, Natixis AM dialogued with companies to assess the coherence of the composition (fixed-variable) of remuneration but also and above all the relevance of the performance criteria used for bonuses and long-term incentive plans. The principal issue was the correlation of remuneration with the creation of real economic value and with the strategic objectives outlined in advance. Improvements in the composition of the board: the principal areas of engagement concerned the improvement of independence, competence, and expertise, as well as the diversity and availability of directors. The transparency of the appointment process also remains a major area of engagement with companies to guarantee the independence of the candidates proposed. Balance of power between executive and supervisory bodies: notably through the appointment of an independent lead director in cases where the functions of chairman and CEO are not dissociated. Introduction of CSR committees on boards: in order to better integrate questions of CSR in the board s strategic deliberations. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 15

16 1.2 ENGAGEMENT IN PRACTICE: Mining Sector and Human Rights issues Background Local communities often perceive mining companies as sheer exploiters of their resources, which leads to unacceptance of the mining projects. This perception is often exacerbated when operations take place in remote locations with high levels of poverty and no access to the economic benefits provided by the mining activities. Furthermore, mining companies can be confronted with episodes of illegal trespassing on their mine premises by illegal loggers in search of precious metals, which often results in clashes with the company s security forces and the police. In such circumstances, it is particularly hard for the companies to ensure there is no infringement upon human rights and that their licence to operate doesn t suffer from subsequent repercussions. In 2014, during our regular engagement activities with investee companies, we came across a London-listed gold mining company operating in an area subject to frequent illegal trespassing in Tanzania. The company s open pit gold mine was the scene of several violent clashes between security forces and the police and illegal loggers. These clashes often resulted in deaths among the trespassers mostly villagers suffering from poor economic conditions subsequently reported by the media, which spurred serious concerns among international stakeholders and investors about the company s ability to manage human rights risks. Geographic focus: Tanzania, Africa ESG theme: Human rights Industry: Mining Type of engagement: One to one with the company s CEO Date of launch: March 2014 Status of engagement: Phase I completed Next step: monitoring Mirova s action We contacted the company in order to gain a better appreciation of its human rights risk management and also to push for improved transparency concerning the number of incidents that occurred on its premises. Through our exchanges with the company s IR representatives, we learned that the company was taking the issue very seriously and had adopted a number of new measures to prevent and reduce trespassing and incidents at the mine, such as: increased community spending through the provision of support infrastructure, engagement with the government on the Voluntary Principles for human rights integration 1, and police and security personnel training on human rights issues. 1 The Voluntary Principles on Security and Human Rights (VPs) are a set of non-binding principles created to assist extractive companies to balance security concerns with human rights, which were launched in 2000 and are a tripartite multi-stakeholder initiative. 16

17 Despite the company s efforts, we remained concerned about the lack of transparency concerning the incursions at the mine and the related human rights impacts. We therefore held a meeting with the company s CEO in London to urge him to provide better disclosure on these issues. Discussions focused on: Security enforcement and stakeholder engagement: we persuaded the company to improve disclosure around its positive contribution to the surrounding community through the use of KPIs related to the programmes and measures aimed at fostering local development and broader acceptance of the mine by the relevant stakeholders. Improved transparency: we pushed the company to disclose KPIs pertaining to the security at the mine, so that we could evaluate progress. These KPIs included: the number of times the police entered the site due to emergencies and/or when security personnel had to adopt reinforced security measures, and the number of incidents occurring at the mining site. We also encouraged the company to provide better information on the number of grievances registered and addressed per year, specifically pertaining human rights. Company response: After our meeting, the company s CEO reached out to us to announce that the company had decided follow our recommendations and adopt KPIs related to grievances registered, addressed and resolved by category, and also to trends and interpretations surrounding illegal trespassing on their premises Engagement timeline: - March - April: exchanges with the company - October: one to one meeting with the CEO in London and request for KPIs - November: company commits to adopting some of the measures discussed and to communicating these in its next annual report Monitoring Mirova s conclusions and next steps: We welcomed the company s response and commitment to strengthening transparency concerning security at the mine as well as human rights management mechanisms. However, we are aware that, due to the complexity of the issue and the economic and political context in which the company operates, improvements will require time. Therefore, we will continue to monitor the situation to ensure that the new measures lead to an actual improvement of human rights management practices and a reduction of the associated operational risks. 17

18 2 I GREEN BOND INITIATIVES The objective of responsible investment is to create economic, social and environmental performance by investing savings in companies or projects that favour sustainable development. Mirova s engagement approach to green bonds is based on the conviction that the integration of extra-financial criteria into investment decisions is key to creating value over the long term. Therefore, through its investment in sustainable bonds, Mirova strives primarily to target entities or projects that are able to seize the opportunities associated with the transition of our economy towards a more sustainable society, while ensuring that potential environmental, social and governance (ESG) issues are taken into consideration. However, the sustainable bond market is still in its infancy, and practices are still heterogeneous, particularly in terms of transparency. This is why Mirova decided in 2014 to initiate a constructive dialogue with sustainable bond issuers, or potential issuers, to inform them about our expectations and promote the development of a structured and credible green bond market. In 2014, Mirova engaged with 28 players in the bond market, including corporate issuers, local authorities and supra-national agencies. The engagement objectives with respect to issuers of green bonds centre primarily around 5 main issues: Use of proceeds Second and third opinion Project selection criteria Governance of the bond Mitigation of ESG risks Main engagement areas with green bond issuers This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 18

19 Main engagement areas with green bond issuers: Use of proceeds we encourage companies to clearly state in the prospectus that the proceedings of the bond will be used to finance projects with added environmental or social value; Project selection criteria we ask issuers to provide clear eligibility criteria for project selection, which must be sufficiently binding to ensure that the projects funded represent significant environmental and/or social opportunities; Mitigation of ESG risks we encourage issuers of sustainable bonds to communicate on the strategy implemented to mitigate ESG risks associated with projects funded by these bonds; 28 bond issuers targeted Governance of the bond we encourage issuers to provide elements guaranteeing the traceability of funds raised through the issuance of the green bond. To this end, we look for periodical reports detailing the projects financed by the green bond proceedings and measuring the environmental and/or social impacts of the projects; Second and third opinion we press for the recourse to a second opinion provided by extra-financial agencies and also recommend the establishment of a third opinion for all issuers of sustainable bonds (certified by auditors). Such third opinions must at least cover the traceability of accounts and also ideally the environmental and social impact of the projects funded by the green bond. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 19

20 3 I RESPONSIBLE INFRASTRUCTURE Mirova s ambition is to steer financing towards responsible projects offering solutions in terms of sustainable development. Beyond simply taking into consideration the management of environmental and social risks throughout the lifecycle of each project, Mirova wishes to place value on solutions to the challenges of sustainable development. This approach aims, for instance, to support projects relative to our economy s transition toward a more sustainable society, implying an energy transition and an orientation toward a social and solidarity-based economy meeting the basic needs (access to health, food, education, etc.) of all. Mirova s engagement approach to infrastructure projects is based on the conviction that financing for renewable energy projects and public-private partnerships are tangible and efficient tools for addressing sustainability issues in the real economy. However, to highlight the environmental and social benefits afforded by a project and to improve the visibility of the sustainability impact for investors, Mirova needs figures such as long-term job creation for all projects, CO2 emissions avoided for renewable energy projects, percentage of energy consumption reduction for building efficiency projects, number of kilometres of supplementary lines for rail projects, etc. An environmental and social analysis of opportunities and risks is challenging when it comes to companies responsible for the projects (builders, operators, suppliers) that do not provide the necessary environmental and social information. Mirova deployed its analysis methodology for infrastructure funds in 2014 according to the following engagement process: In 2014, Mirova engaged on 11 projects present in its Infrastructure funds. The main engagement objectives were: - Long-term job creation for all projects, - Transparency concerning social practices (working conditions and health and safety) during the construction and operation phases, but also with regard to subcontractors, - Carbon footprint of the project - Contribution in terms of sustainable mobility for car parks. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 20

21 Main engagement areas with companies responsible for Infrastructure projects: Long-term job creation we encourage companies to clearly mention the number of jobs created to ensure the operation and the maintenance of the project. In terms of employment, Mirova requests transparency on social integration clauses and local development; Transparency concerning social practices companies responsible for a project (builders, suppliers, and operators) do not all have sustainable development policies. Thus, the disclosure of social information, especially on a single project, is not sufficiently clear; 11 projects targeted Carbon footprint of the project whether for a renewable energy project (to highlight its carbon advantage compared to other energy sources) or for a building, clear indicators on energy and carbon are essential for steering financing; Contribution in terms of sustainable mobility in 2014, the infrastructure funds invested in certain car park projects. A car park can contribute to the development of alternative mobility via dedicated areas (carpooling, car-sharing, secure bicycle areas, electric charging, and public transport tickets). 21

22 3 COLLABORATIVE ENGAGEMENT INITIATIVES Mirova s collaborative engagement strategy entails various initiatives implemented through different channels, such as the PRI, with the aim of promoting responsible practices among companies and investors. In 2014, Mirova launched its own collaborative engagement platform made up of Mirova experts and client representatives in order to create a lever to influence companies practices by conducting close dialogue surrounding highly controversial issues. MIROVA ENGAGEMENT PLATFORM Launch of 2 collaborative initiatives on the supply chain and exploration in the Arctic PRI STEERING COMMITTEES Active participation in 5 collaborative initiatives Investor Statement Support for 7 investor statements 22

23 SOCIAL ISSUES IN THE SUPPLY CHAIN Date of launch: June 2014 Status: On-going process Step 3 Country focus: Asia Pacific BACKGROUND The social issues in the supply chain can cause reputational risks for companies when these are brought to the attention of the public, as was the case for Apple when the working conditions at Foxconn were brought to light, and for the entire apparel industry when the Rana Plaza building in Bangladesh collapsed. These issues can also translate into operational risks as strikes and work stoppages can cause delays in the supply chain. Companies in the textile and IT industries have been surrounded by controversies in their supply chains over the past few years. The most well-known controversies are the Foxconn suicides in 2010 (IT sector) and, more recently, the collapse of the Rana Plaza in 2013 (textile and apparel industry). 10 companies targeted ESG themes: Social impacts 15 investors supported Industry: ICT and Textile Type of engagement: Collaborative Following these events, we have seen that despite certain efforts to improve conditions, social issues (i.e. poor working conditions and human rights violations) in the supply chain of these industries are recurrent not only in the countries directly concerned by the controversies, but also in other countries with similar environments. Additionally, these events highlight the urgent need for immediate and long-lasting action from governments, civil society and the companies themselves. We have thus decided to engage with well-known and consumer-facing brands in the textile and technology sectors with the goal of improving the supply chain in these industries. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 23

24 SUPPLY CHAIN ENGAGEMENT STRATEGY Where we are RISK ASSESMENT FACTORS Risk assessment factors used to identify and select target companies: Location of suppliers Social opinion is neutral or risk due to their supply chain management Market leaders with strong influence on their supply chain BUILDING A SHAREHOLDER COALITION Through the UN-backed Principles for Responsible Investment investor platform, we gathered the support of an additional 12 global investors to participate in the engagement initiative. STEP 1 _ Q STEP 2 _ Q3/Q STEP 3 _ 2015 Drafting a study on the engagement issue Defining the Engagement Strategy goals, targeted companies, engagement rules Building a Shareholder coalition Conducting the engagement with companies Follow-up with companies ENGAGEMENT OBJECTIVES Increased transparency: more communication on the structure of their supply chains, their initiatives & their progress Social risk mapping: better understanding of the risks linked to the supply chain, where they are & how big the negative impacts would be Enhanced relationships with the suppliers: development of longer-term relationships that start with the company s buying practices Multi-stakeholder initiatives: a systematic approach to addressing issues that the industry as a whole faces TARGETED COMPANIES Based on Mirova s and the platform s members positions, a list of companies have been identified Engagement Letter Mirova wrote tailored letters to the Chairmen of the target companies in order to invite dialogue over their supply chain management practices. The letters were co-signed by the global investors that agreed to join the engagement initiative through the PRI platform. 24 Dialogue with companies Mirova discussed supply chain management practices in detail with the companies that responded to our letters. These discussions shed light on some of the initial questions that were not easily answered by their sustainable development reports. During the first quarter of 2015, we will evaluate the overall responses and reevaluate our engagement objectives for the engagement follow-up.

25 Insight into on-going engagement Textile sector Globally, we have not seen major changes in company practices since the Rana Plaza. The majority of groups already had measures in place to manage risks related to the supply chain. Nevertheless, the question of building security was not identified as a source of risk until the Rana Plaza incident, principally due to the absence of any leverage over suppliers on these issues. As such, the role of governments has often been put forward as crucial to improving standards and practices in the countries at risk. More particularly, for the 4 engagement areas defined, we may distinguish 2 groups of companies: Group 1: actors considered pure plays in the textile industry. Group 2: diversified actors whose textile activity does not represent a significant part of their revenues. This group includes major retailers. Actors in group 1 naturally have a more advanced approach to supply chain issues due to their strong exposure to reputational risk. They display better transparency on the procedures in place to manage their risks and improve relations with their suppliers. Among the good practices observed one notes: the publication of the list of their suppliers, their geographic location as well as an assessment of their social performance; exhaustive analyses of social risks by country or region of production; analyses of factory management systems to assess their ability to conform to internal norms and improve working conditions for their personnel; the implementation of action plans to improve relations with suppliers and the publication of the progress observed; the implementation of a code of conduct; the integration of the results of audits in the process of selecting their buyers (beyond establishing a blacklist of suppliers); initiatives to address issues such as freedom of association and decent wages. Companies presented different levels of transparency and preparedness according to their reputational risk exposure As for the actors in group 2, they have procedures for identifying and managing their risks but, being less exposed, are less transparent concerning certain crucial information such as their sources of supply or their performance in terms of risk prevention. At issue is the sensitive nature of certain information the publication of which could weigh on their competitive advantage. Nevertheless, we have noted a real commitment on the part of these companies to enhance supply chain risk management, notably through the improvement of purchasing procedures, the reinforcement of auditing measures, 25

26 but also by limiting exposure to high-risk geographic zones. As for sector-specific initiatives, all of the actors appear to be getting involved on various levels, whether on a national or an international scale, with the aim of sharing information to better manage risks related to building security and improve international standards. To date, however, the effectiveness of these initiatives remains very limited with respect to other structural problems, such as decent wages, due to their very limited power to influence the governments of the various countries concerned. managing risks tied to the reliance on suppliers in high-risk geographic zones; reinforcing sustainable ties with suppliers; improving industry standards via targeted sector-specific initiatives. Despite improving practices, evaluation remains difficult due to low transparency The interviews conducted reassured us of the different actors awareness of the importance of responsible supply chain management. The measures implemented by certain major actors are already laying the foundations for better management of this issue; however, assessing the effectiveness of these measures remains difficult in the absence of greater transparency concerning the results of the actions undertaken. Improving transparency thus remains a primary engagement theme. In the context of the third phase of engagement, we will concentrate our efforts on defining performance indicators and publishing results for the 3 levers of action defined in the framework of our engagement strategy: 26

27 ICT sector The repeated scandals implicating, in particular, Foxconn the supplier for the great majority of companies in the ICT sector involved in the production and commercialization of IT equipment, have had a strong impact on industry practices over the past several years. A growing number of groups, starting with those most exposed to reputational risks, have implemented ad hoc strategies in order to control environmental and especially social risks relating to the supply chain. It should be noted that the Electronic Industry Citizenship Coalition (EICC), an initiative bringing together numerous actors in the sector, has played a leading role in taking these issues into account and developing adequate measures. More particularly, for the 4 engagement areas defined, we may distinguish 2 groups of companies: Group 1: actors that are highly exposed to reputational risk. Group 2: actors that are less exposed to reputational risk due to the structure of their client base and/or their capital structure. Naturally, actors in group 1 are more transparent about the strategy in place to prevent and mitigate these risks and improve relations with their suppliers. Even if only one company wished to participate in our engagement process, we may mention several good practices, among which: the publication of the list of their suppliers as well as their geographic location; the implementation of a procedure for assessing their social performance, taking into account social risks by geographic zone and by type of supplier; analyses of factory management systems to assess their ability to conform to internal norms and improve working conditions for their personnel; the implementation of action plans to improve the practices of suppliers and the publication of the progress observed; the implementation of a code of conduct; the integration of the results of audits in the process of selecting their buyers; initiatives aiming to address specific issues such as training employees so that they are aware of their rights in the workplace; the adoption of tools implemented by the EICC initiative to map out and mitigate supply chain risks (development of common standards to facilitate and encourage the compliance of suppliers), and the active participation in this initiative, notably through the sharing of numerous experiences and audit results. We had a low response rate in the sector, but were able to identify some good practices Actors in group 2, less exposed to reputational risk, provide very little information, which is often limited to the code of ethics adopted by the group. In the 27

28 absence of any reply on their part, it is impossible to assess the adequacy of the mechanisms in place. If the measures implemented by a growing number of companies and the interesting initiatives lead by the EICC strengthen our belief in the capacity of the sector to adopt better supply chain management, the weak response to our engagement efforts and the recurrence of scandals relating to fundamental workers rights (child labour, forced labour, etc.) suggest that it is imperative to persist in this engagement in order to encourage companies to take these issues into account and to enhance transparency on the effectiveness of the mechanisms in place. In the context of the third phase of engagement, we will concentrate our efforts on the development of new ways to open a dialogue with the greatest number of companies, as well as on defining performance indicators and publishing results for the 3 levers of action defined in the framework of our engagement strategy: managing risks tied to the reliance on suppliers in high-risk geographic zones; reinforcing sustainable ties with suppliers; improving industry standards via targeted sector-specific initiatives. Evaluation of lagging companies remains difficult due to lack of transparency 28

29 OIL EXPLORATION IN OFFSHORE ARCTIC Date of launch: June 2014 Status: On-going process Country focus: The entire Arctic region ESG themes: Direct environmental impacts Sustainability reporting Industry: Oil and Gas sector Type of engagement: Collaborative BACKGROUND Looking back at the history of offshore exploration, the Arctic seems today to be the final frontier for oil companies. However, the zone remains a major challenge in more ways than one, especially for offshore oil extraction, where oil exploration has not yet started. At an operational level, trends show that companies are now operating in increasingly risky areas. On the environmental level, the possibility of an oil leak in the Arctic is impossible to predict quantitatively, and the consequences would certainly be dramatic. On the political level, the extreme sensitivity of the parties concerned is bringing about a toughening of regulatory constraints. These factors combine to call into doubt the economic feasibility of these projects. For investors, major questions remain regarding the level of risk. In light of these considerations, Mirova published a study in February 2014 highlighting the risks of offshore oil exploration in the Arctic (Offshore Oil in the Arctic, should investments be frozen?) and identified the oil and gas companies most exposed to such risks. We have therefore decided to engage with the oil and gas companies exposed to offshore Arctic exploration or with licenses to explore in offshore Arctic waters - with the goal of improving their disclosure concerning the economic impact and sustainability management systems of their operations. 6 companies targeted 18 investors supported 1.9 trillion of AUM represented This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 29

30 ARCTIC EXPLORATION ENGAGEMENT STRATEGY RISK ASSESMENT FACTORS WHERE WE ARE Risk assessment factors used to identified and select target companies: Water depth Distance from the shore and presence of particularly harsh conditions Partnerships with Russian companies BUILDING A SHAREHOLDER COALITION Through the UN-backed Principles for Responsible Investment investor platform, we gathered the support of an additional 15 global investors to participate in the engagement initiative. Q2-14 Drafting a study on the engagement issue Defining the Engagement Strategy goals, targeted companies, engagement rules Building a Shareholder coalition Q3-14 Q1-15 Conducting the engagement with companies Follow-up with companies ENGAGEMENT OBJECTIVES Transparency concerning ESG riskmanagement approach of the projects Disclosure of practices envisaged to limit potential environmental accidents Specification of risk and cost-sharing agreements in joint-ventures Disclosure of economic viability of the project TARGETED COMPANIES Based on Mirova s and the platform s members positions, a list of companies have been identified ENGAGEMENT LETTER Mirova wrote tailored letters to the Chairmen of the target companies in order to invite dialogue over the companies exposure to offshore Arctic, specifically with regard to riskmanagement. The letters were cosigned by the global investors that agreed to join the engagement initiative through the PRI platform. COLLABORATIVE DIALOGUE Mirova sent the letters to the target companies in September 2014, and received all responses by the end of We started dialogue with some of the companies as early as November During the first quarter of 2015 we will evaluate the overall responses and re-evaluate our engagement objectives for the engagement follow-up 30

31 Insight into on-going engagement: Offshore Arctic oil exploration In our discussion with the responding companies, we realized that these have a tendency to share more information on technical aspects than on strategic aspects relating to oil price projections. We also noted poor transparency around the way joint-venture partnerships are governed and where responsibility for performance monitoring lies. While some companies that are currently present in the Arctic display a high level of confidence in the technological progress that has been made, which, they report, will allow further exploitation of more difficult to reach hydrocarbon resources, others that have decided not to invest in Arctic exploration at all have a much more pessimistic view. Interestingly, a European oil major that we contacted confirmed our view that the Arctic presents far too many uncertainties and risks from an operational standpoint, whereas another decided to explore only in offshore waters that are ice-free and thus do not present the typical operational risks of frozen Arctic waters. Companies showed a varying degree of risk despite all being involved in offshore Arctic waters One of the most interesting findings was that levels of expertise when it comes to offshore Arctic exploration among oil majors vary significantly, with some having never entered the area and others having developed substantial in-house expertise. Among the companies operating in the field, all of them reported that oil prices, while taken into consideration for capital expenditure in the Arctic, are not the main trigger in terms of project decisionmaking. Technological progress is another important issue, where companies collaborate on an industry-wide basis, as well as through internal research to varying degrees. With regard to joint-venture partnerships with Russian partners, which significantly increases the risk exposure of these projects, two of the oil majors that have extensive direct and indirect exposure to Rosneft, the flagship Russian oil and gas company, either declined to respond or provided very little information on the monitoring and reporting of the environmental and safety performance of the projects. It is also worth noting that at present there is considerable uncertainty concerning the offshore Arctic projects set to involve Russian companies, due to the western sanctions that have hit Russia since mid Generally, we noted that there is ample room for improvement in terms of disclosure and transparency, particularly surrounding the actual investments made or planned in the Arctic, the required price of oil that determines the feasibility of the investments, details concerning agreements with joint-venture partners and monitoring of sustainability practices. Poor transparency in these areas comes as no surprise, as they are areas where oil 31

32 companies generally disclose very little information. Therefore, in the next phase of our engagement process, our focus will be on the following engagement objectives: For the companies that did not respond or that provided insufficient information: Improving overall transparency on economic considerations: capex and R&D investments in offshore Arctic and the price of oil used for their economic projections. Improving transparency concerning the monitoring and risk-sharing agreements with Rosneft, as well as indirect know-how sharing and For the companies that provided more exhaustive information: Encouraging disclosure of the information provided on riskmonitoring in joint-venture agreements in the annual reports, with quantitative KPIs and performance reporting. Encouraging detailed disclosure of capex expenditure and projected return on investments for their Arctic projects, and comparison with their portfolio s average. Requiring key disclosure on risksharing arrangements and oil spill response for projects carried with Russian joint-venture partners and, more generally, with partners with poor disclosure levels. strategy influence for indirectly exposed companies. The next engagement phase will focus on the disclosure of the return on investment of offshore Arctic projects 32

33 FRACKING Date of launch: 2013 Status: - Phase I: completed - Phase II: on-going Country focus: All countries Background Since the shale revolution, shale gas fracturing has catalyzed investors attention due to the associated ESG risks involved, notably water pollution and the uncertainty concerning greenhouse gas emissions reduction compared to other hydrocarbon sources. Mirova has been monitoring developments within the shale gas space since its inception and published a research paper on the topic in Mirova has joined the PRI engagement initiative on fracking as a member of the Steering Committee and as lead investor for dialogue with several companies. Objective of the engagement: To better understand the companies approach to minimizing and managing social and environmental risks related to their fracking operations ESG themes: Other environmental issues Asset class coverage: Listed equities Number of companies targeted: 56 Number of engagements as lead investor: 3 Type of engagement: Collaborative To achieve improved transparency concerning policies and management systems related to fracking operations and to encourage best practice To allow Mirova to assess the financial and sustainability impacts and opportunities associated with shale gas fracturing Activities in 2014: Over the course of 2014, investors held a series of meetings with targeted companies, specifically those with the largest exposure to fracking. The engagement focused on the companies policies and practices regarding the risk management of hydraulic fracturing operations. Next steps: 56 companies targeted The Steering Committee will decide on what follow-up steps to take in 2015 after the targeted companies are assessed and benchmarked according to pre-defined metrics and criteria. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 33

34 HUMAN RIGHTS IN THE EXTRACTIVES Background Date of launch: 2014 Status: - Open Country focus: Multiple regions The violation of human rights by extractive companies continues to receive significant attention in the media and civil society, while threatening the companies license to operate. Accordingly, investors are increasingly concerned about the impact that heightened operational risks may have on their investments. Throughout 2014, Mirova has been very active in engaging with mining companies on human rights issues (see p. 18) and joined the Steering Committee in order to better understand international best practice. Objective of the engagement: To better understand the companies approach to minimizing and managing human rights risks related to their operations ESG themes: Human rights Asset class coverage: Listed equities Number of companies targeted: 36 To achieve improved transparency concerning policies and management systems related to human rights risk management and to encourage best practice To allow Mirova to assess the financial and sustainability impacts and opportunities associated with human rights management in the extractive sector 49 companies targeted Type of engagement: Collaborative Activities in 2014: In 2014, the Steering Committee focused on defining the scope of the engagement process and developing best practice indicators as well as a scoring system for engagement. Next steps: In January 2015, the Steering Committee members will organize roundtable discussions with a few target companies behind closed doors, both in Europe and in the US, with the aim of better understanding current best practice and major industry challenges. The subsequent engagement with all target companies will be launched during the second quarter of

35 DIRECTOR NOMINATION PROCESS Date of launch: 2013 Status: On-going Country focus: France and US Background An appropriate board composition is necessary for achieving long-term value creation for all stakeholders. Mirova has therefore been engaging with companies in the past years in order to increase the level of transparency concerning the director nomination process, which is a key issue for French companies in particular. Joining the initiative launched by the PRI was thus completely in line with our actions aiming to improve board nomination practices. Objective of the engagement: To increase company transparency in relation to their board nomination process ESG themes: Governance To allow investors to assess the consistency of a company board s needs with the candidates skills and experience To improve board composition in order to increase its effectiveness Asset class coverage: Listed equities Number of companies targeted: 21 Number of engagements as lead investor: 3 Type of engagement: Collaborative Activities in 2014: In 2014, the Steering Committee members launched the engagement process with companies and conducted a series of meetings with targeted companies. Next steps: 21 companies targeted The Steering Committee members will follow up on the companies answers and pursue the engagement process accordingly. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 35

36 ANTI-CORRUPTION PRACTICES Date of launch: 2013 Status: - Phase II: on-going Country focus: All sectors and countries Background In 2010, a coalition of 21 investors launched an engagement initiative with 21 selected companies from different sectors and countries on their anti-corruption risk management based on publicly available information. The engagement focused on the companies policies and practices regarding the ICGN Statement and Guidance on Anti-corruption Practices and the UN Global Compact on anti-corruption practices. In 2013, the PRI decided to launch a new phase of this engagement process in order to improve transparency and disclosure of anti-corruption strategies, policies and management systems of global companies that are exposed to corruption-related risks. Objective of the engagement: ESG themes: Governance Asset class coverage: Listed equities Number of companies targeted: 45 Number of engagements as lead investor: 2 Type of engagement: Collaborative To better understand the company s ability to manage and reduce corruption-related risks and its capacity to improve practices and transparency To achieve improved transparency and disclosure of anti-corruption strategies, policies and management systems by companies To verify that the implementation and effectiveness of company processes are adequate to protect against legal/regulatory concerns faced by the company To encourage reporting that is in line with international reporting frameworks To allow investors to better assess and manage their exposure to the financial, operational and reputational impact of corruption risks in their portfolios Activities in 2014: In 2014, the Steering Committee members launched the engagement process with the companies and conducted a series of meetings with targeted companies. Mirova lead two engagements with companies from the defence and banking sectors. Next steps: The steering committee members will follow up on the companies answers and pursue the engagement process over the course of This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 36

37 Insight into engagement on anti-corruption practices As the leader of this initiative with one company within the aerospace & defence sector, we sent a letter to the company s board at the end of 2013 in order to obtain further information on anti-corruption management. More specifically, we requested information on the following elements: The employees concerned by the company s code of conduct or anticorruption policy The agents or other intermediaries concerned by the company s code of conduct or anti-corruption policy The contractors, subcontractors and suppliers concerned by the company s code of conduct or anticorruption policy The anti-corruption training programme for employees Anti-bribery standards when selecting suppliers in March 2014 in order to delve further into some of the outstanding issues. During the discussion with the company, many elements were provided demonstrating the robustness of the anticorruption policy of the group. We found that the company manages its risk exposure appropriately through a compliance organization deployed in each division of the group, and that it is reasonably active in implementing an effective anti-corruption policy. Next steps: We encouraged the company to disclose more key indicators in its reports, such as training programmes and risk assessment by geographical area, in order to highlight its good practices. In 2015, the PRI will review the company s progress within the identified areas of improvement for its assessment. After receiving an initial written response, we organized a meeting with the company 37

38 INVESTOR STATEMENT Purpose: The ATM index ranks pharmaceutical companies efforts to improve access to medicine in developing countries. Funded by the Bill & Melinda Gates Foundation and the UK and Dutch governments, the Index has been published every two years since The purpose of the investor statement is to reaffirm the importance of the issue of access to medicine and to encourage pharmaceutical companies to take this issue into account within the context of their growth strategy in developing countries. Mirova s approach to the Access to Medicine Index: As a responsible investor, Mirova places great emphasis on this issue when selecting companies in which it invests and integrates the Index s analysis in its evaluation of pharmaceutical companies. Mirova also works closely with the access to medicine project team to improve its methodology, notably on three issues: Adapting the access to medicine strategy countries priorities Broadening the scope to include vaccines and generics Broadening the scope to include developed countries Total AUM of supported investors: $4.4 trillion ACCESS TO MEDICINE INDEX In 2014, the ATM Index improved its methodology but it does not yet take into consideration the two last points EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE Purpose: To implement the EITI s global standard to promote openness and accountable management of natural resources. Mirova s approach to the EITI Mirova signed two letters to the US SEC aiming to press for global consistency and high transparency standards in the extractive sector by reaffirming the strong support for the SEC s leadership in establishing a mandatory reporting standard. It focuses on the broad argument that granular reporting down to the project level is of indirect benefit to investors as it should contribute to an improved business climate longer term, but is not actually necessary for most investment decisions. Total AUM of supported investors: $6.4 trillion Only through increased transparency can governments be held accountable for the management of natural resources and wealth distribution 38

39 GREEN BONDS & CLIMATE BONDS Purpose: To promote green and climate bonds as an opportunity for investors to finance solutions to climate change. The letter encourages: Governmental support (e.g. policy, regulation) Implementation of industry standards for the impacts and benefits of financed projects Transparency concerning the use of proceeds and the impact of the green bonds. Green bonds can be considered a great tool for supporting sustainable development. They require a stronger framework, however, to guarantee that the proceeds are used to finance sustainable projects Mirova s approach to green bonds: As a responsible investor, Mirova is convinced that green bonds can indeed be a great tool for supporting sustainable development, but they require a stronger framework to guarantee that the proceeds are indeed used to finance projects that qualify as sustainable. Total AUM of supported investors: $2.62 trillion ICCR s STATEMENT OF PRINCIPLES AND RECOMMENDED CORPORATE PRACTICES TO PROMOTE GLOBAL HEALTH Purpose: The statement, endorsed by over 80 organizations, is an articulation of ICCR members views regarding the social responsibility of the pharmaceutical sector to address the human right to health by promoting the access, availability, affordability, and infrastructure required to deliver life-saving medicines where they are most needed. The main principles focus on: Access & affordability Innovative research & development models Ethical business practices Community investment Partnership and collaboration Transparency and disclosure Engaging with global pharmaceuticals to redress inequalities in the availability of medicines 39

40 GLOBAL INVESTOR STATEMENT ON CLIMATE CHANGE Purpose: The initiative, launched in 2009, aims to increase awareness of the role of investors in contributing to low-carbon and climate-resilient investments by offering practical proposals on how their contribution may be accelerated and increased through appropriate government action. The statement sets out the way investors can contribute to this goal by: Working with policy makers Identifying and evaluating low-carbon investment opportunities Developing the capacity to assess risks and opportunities Working with the companies in which they invest Continuing to report In addition, the investors call on governments to reach an ambitious global climate agreement by 2015 and to facilitate investment flows. What is positive is the increased visibility of the company s activities in the low-carbon investment space Total AUM of supported investors: $24 trillion IOSCO Purpose: This initiative aims to send a message to IOSCO (International Organization of Securities Commissions), regulators, and exchanges that investors have a desire and a need for improved ESG information in the market, and that we expect IOSCO and its members to play a role in helping improve the current state of disclosure by: Leading the dialogue with regulators and exchange operators to determine a pathway for more consistent ESG disclosure rules to be brought forward in each market; Encouraging the development of disclosure rules and accountability mechanisms that facilitate meaningful, comparable, and consistent ESG disclosure across markets, without imposing undue compliance or liability risks on issuers; Creating a task force dedicated to improving ESG disclosure market-wide, and whose work would feed into that of IOSCO's Issuer Accounting, Audit and Disclosure Committee (C1); Publishing an official statement explaining the rationale for ESG disclosure to help issuers and capital market influencers better understand the benefits. Playing a key role in order to better inform the investment industry about ESG issues 40

41 MONTREAL CARBON PLEDGE Purpose: The Pledge was launched on 25 September 2014 at PRI in Person in Montreal, and is supported by the Principles for Responsible Investment (PRI) and the United Nations Environment Programme Finance Initiative (UNEP FI). Overseen by the PRI, it aims to attract commitment from portfolios totaling US$3 trillion in time for the United Nations Climate Change Conference (COP 21) in Paris in December By signing the Montreal Carbon Pledge, investors commit to measuring and publicly disclosing the carbon footprint of their investment portfolios on an annual basis. PORTFOLIO DECARBONIZATION COALITION Purpose: The Portfolio Decarbonization Coalition (PDC) is a multi-stakeholder initiative that will drive GHG emissions reductions by mobilizing a critical mass of institutional investors committed to gradually decarbonizing their portfolios. Members of the coalition share a dual vision, setting themselves two interconnected and intermediary targets: - Disclosure of carbon exposure, i.e. the carbon intensity of the capital - Reduction of the carbon intensity of the investments and portfolios Mirova s approach to the Montreal Carbon Pledge & the Portfolio Decarbonization Coalition: Mirova s approach to decarbonization goes beyond these 2 initiatives as it is embedded in its responsible investment policy. As part of its commitment to publishing the carbon footprint of its investment, Mirova has established a partnership with Carbone 4 to jointly develop an innovative method for measuring companies contribution to the energy transition. This commitment will enable Mirova to strengthen its investment strategy by taking into account risks and opportunities linked to climate change issues in its investment decisions 41

42 4 ENGAGEMENT INTIATIVES THROUGH STAKEHOLDER GROUPS Considering its position among the leaders on the European RI market, Mirova plays a key role in collaborative working groups within the RI industry. This active involvement, illustrated below with concrete examples, forms an integral part of its engagement approach. As a complement to its dialogue with issuers, Mirova seeks regularly to share views and ideas with its peers in order to collaboratively improve the harmonization and professionalization of the RI industry. Mirova gives high priority to white papers and contributes to structural discussions on responsible investment, in particular through an active presence in the main dedicated RI professional bodies. Over the last two years, Mirova has significantly expanded its initiatives in this respect and is today a member of the primary organizations aiming to develop a common extra-financial approach and to promote responsible investment. Mirova s participation in industry-wide organizations at the national, European, and international levels 42

43 Examples of initiatives in which Mirova participated as part of its lobbying activities At the national level Mirova is a member of the SRI and Corporate Governance Commission of the French Asset Management Association. As president of the SRI Commission, Philippe Zaouati, CEO of Mirova, played an active role in the definition of the French government s future SRI labelization. As a representative of the French Asset Management Association, Philippe Zaouati, CEO of Mirova, actively participated in the work of the French SRI platform launched in 2013 by the French government to promote, among others, CSR reporting and responsible investment. At the European level Mirova, represented by its CEO, Philippe Zaouati, is a member of the Green Growth Group for business set up by the Ministerial Green Growth Group to make a powerful economic and strategic case for green, resource-efficient and low-carbon growth, and to start to steer the narrative in Europe back towards ambitious climate goals and EU leadership. In 2014, Mirova participated in the elaboration of recommendations to the European Commission to advice on mobilizing capital for the low-carbon transition across the European Union. Mirova is a member of the Responsible Investment Working Group and the Corporate Governance Working Group. In 2014, Mirova participated in the European Commission s consultation on the Shareholder Rights Directive. 43

44 Mirova is a member of Eurosif, the leading nonprofit pan-european sustainable and responsible investment (SRI) membership organization whose mission is to promote sustainability through European financial markets. In 2014, Mirova participated in the European Commission s consultation on the Shareholder Rights Directive.le in the definition of the future SRI labialization of the French government At the international level In partnership with the University of Cambridge, Mirova created the Investment Leaders Group (ILG), whose mission is to shift the investment chain towards responsible, long-term value creation. Philippe Zaouati, CEO of Mirova, chairs the Investment Leaders Group. As a member, Mirova has participated in different work stream groups and led the working group on Reporting Investment Impact. Mirova is a member of the Investment Commission. Mirova is a member of the Business Ethics Committee. Mirova is a member of the investor network on multiple levels. Through its active participation in various working groups, Mirova has contributed to: expressing the needs of investors in terms of corporate information in order to make better investment decisions helping corporate participants develop their own integrated reporting, key performance indicators, etc. helping the IIRC gain recognition both in the investment sphere and on a broader scale 44

45 5 EXERTING INFLUENCE THROUGH VOTING RIGHTS 1I 2014 VOTING REVIEW The average opposition rate (votes against and abstentions) for 2014 is 24%. However, this rate presents a marked heterogeneity with respect to different areas and voting themes. This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 45

46 2I BREAKDOWN OF CONTESTED VOTES BY THEME This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 46

47 3I ENGAGEMENT ACTIONS DURING THE VOTING CAMPAIGN The exercise of voting rights is an important act by which Mirova, as a responsible investor, expresses its opinions and exercises its ownership responsibilities. As part of Mirova s engagement strategy, the exercise of voting rights is supplemented by regular dialogue with company representatives both prior to the exercise of voting rights and after voting, to promote good CSR and governance practices. During the 2014 voting campaign, Mirova led 182 engagement actions with 96 companies in an effort to promote more responsible environmental, social, and governance practices. Beyond the specific subjects pertaining to the agenda of the resolutions introduced at the general meetings and the traditional questions of governance treated in its voting policy, Mirova undertook systematic engagements with all target companies on two priority subjects: the integration of environmental and social criteria in remuneration the establishment of integrated reporting The main engagement themes in the context of the 2014 voting campaign are: This analysis reflects Mirova s opinion at a given time; it is subject to change without prior 47