As investors grapple with current market conditions and how their portfolios are currently positioned, one important element of the investment philosophy at RBC GAM remains constant – the systematic integration of material environmental, social and governance factors into the investment process. In periods of uncertainty, some factors may have more headline risk than others, but one thing is certain, the way in which companies mitigate those risks can make all the difference in how they manage their operations through these uncertain times while continuing to add value over the long term.

ESG factors consider how a company:

Environmental

While it may seem that the current news cycle is focused on short-term market volatility, we believe companies that continue to think about and manage their environmental risks will be well positioned for the long term. Some of these issues include greenhouse gas emissions, plastic waste and water use. As part of our ESG integration process at RBC GAM, we thoughtfully consider the impact of environmental risks and opportunities on our investee companies.

Social

The COVID-19 pandemic has brought social risks to the forefront for many companies, particularly in consumer-based industries. How companies treat their employees, communicate with customers and deal with suppliers have been stressed in recent weeks. Over the long term, companies will continue to face material long-term risks and opportunities on social factors. A company, for example, that doesn’t follow current regional health department guidelines could face fines and reputational damage. In contrast, a company that is a leader in protecting and managing its employee health and safety, as well as its stakeholder relationships, should be better positioned in the long run compared to its industry peer group.

Governance

It’s also important for companies to have strong corporate governance practices. At RBC GAM, we believe that companies with good governance are well positioned to focus on a company’s long-term growth while ensuring that management interests are aligned with those of its shareholders.

As we head into proxy season, companies will need to consider how they will manage their shareholder meetings. Given the current risks around hosting large gatherings, many companies will need to determine whether virtual shareholder meetings are feasible and in what format. While the number of companies that already offer virtual-only meetings is on the rise, they could limit the extent to which shareholders can directly question the board of directors. In ordinary circumstances, if companies pursue a virtual meeting format, we generally prefer a hybrid option, with both a virtual and physical meeting to ensure shareholder rights are protected.

As responsible investors and stewards of our unitholders’ capital, it’s important for us to understand how our holding companies are managing their material ESG risks today and into the future.  One of the ways we do this is by engaging with our investee companies directly. In RBC GAM’s most recent 2019 Corporate Governance and Responsible Investment Annual Report we provide a sampling of our more than 600 ESG related company engagements. We continue to engage with companies on an ongoing basis as these engagements are critically important in understanding new and existing ESG risks and opportunities that can present themselves at any time.