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A rapidly adapting master trust during COVID-19 

• We are continuing our engagement during COVID-19, as some of these practices are more important than ever

• We have adapted our engagement to prioritise the ESG issues unique to COVID-19, such as flexible work policies and sick leave.

SEI’s ESG investment philosophy has existed since 1992, when we first began integrating ESG factors into client portfolios. Over time, we have adapted and improved our approach, sometimes tactically in response to the issues of the day and sometimes strategically to meet the evolving needs of our clients. 

Never has this willingness to adapt been more important than now, in the time of COVID-19. While we want to be sensitive to some of the other issues companies are having now, we don’t know when the pandemic will be over, and must keep the longer-term goal in sight, at the same time encouraging the right behaviours in the short term.

How are we engaging with other companies’ practices during this time?

Because of the coronavirus pandemic, we have quickly shifted to engagements that are unique and topical during this time. 

Appropriate company management of staff impact, including:

• Provision of protective gear and high-frequency cleaning

• Introduce or extend sick leave

• Flexible shift work and adjustment in expectations for home workers

• Emergency funds or salary guarantees for staff who are temporarily not required

• Provision of mental health support

• AGMs – encouraging virtual meetings rather than cancelling or postponing

There are a number of other topics that we’ve engaged on previously that take on different implications during this time. For example:

• Executive pay – This will not be a year for exuberant remuneration. We want companies in windfall sectors to recognise that this is not due to stellar company management.

• Capital allocation – This is not a time to continue share repurchases when balance sheets are under pressure.

• Climate change – A temporary carbon benefit in China of 200 million tons, around half the UK’s annual emissions. Paired with a collapse in oil prices and even more unsustainable carbon energy, there could be an acceleration to green energy. Airline bailouts and fiscal stimuli for other sectors could come with green strings attached.

• Public health – A focus on access to medicine must be maintained, including responsible drug pricing. So must work on antimicrobial resistance (AMR). Antibiotics are not effective against viruses such as COVID-19. However, they may be used in the treatment of some complications from the illness, like pneumonia. Public health systems are under huge strain, and companies need to work constructively with governments to ensure equitable access to treatment is possible.

Our goal is for companies to maintain a focus on ESG despite economically testing times. Even though ESG might not be top of companies’ minds at this moment, it is related to how COVID-19 will affect investors.

Recent impact of ESG tilting

Our Factor Allocation Global Equity Fund is one of our funds that tilts towards companies with better ESG credentials. During the recent market volatility, the ESG tilt of this fund had a positive impact on performance. Highly profitable, asset-light companies have fared better recently, as the traditional asset-heavy firms were forced to limit their business activities. ESG scoring tends to favour the former, and therefore the positive ESG tilt has been accretive. Furthermore, the notorious environmental laggards, the transport and energy sectors, were hit the hardest.

A humanitarian approach 

As with ESG issues, with COVID-19 we are all in this together and need to drive change as one force. To that end, our engagement provider has co-signed the Investor Statement on Coronavirus Response,¹ an initiative from the UN PRI. This statement urges businesses to consider the above engagement topics as good business practice during this time, potentially enhancing their governance policies. Though this was initiated by overall humanitarian motives rather than from an ESG lens, this directly relates to good governance.

Strong advocate for ESG policies

SEI has always been a strong advocate for ESG policies that benefit clients and have a broader impact on corporations. By actively engaging with companies rather than excluding them from our investments altogether, we have given ourselves and our clients a voice to drive change.

As it has done during the pandemic, our engagement adapts as appropriate, focusing on the most pertinent issues that directly affect investors.

For more detail on the DC Master Trust, contact Steve Charlton, Managing Director, at scharlton@seic.com  

1 https://www.bmogam.com/viewpoints/press/responsible-investment/investor-statement-on-coronavirus-response/

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