The concept of responsible investing has become front and centre for many investors. While Rempart has followed a responsible investing approach for many years, we want to share our philosophy and approach with you.
Our primary function as an investment manager is to analyze the securities of publicly traded companies and incorporate this into the management of your portfolio. A critical component of this analysis is responsible investing, with a focus on three main tenants: Environmental, Social and Governance (ESG).
Throughout our research process, we balance the growth prospects of individual companies and industries within the larger social framework in which they operate to ensure that all stakeholders benefit; this includes shareholders, employees, suppliers, customers, and the communities they serve. This goal is not in conflict with our objective to generate superior returns for clients. Companies that have strong core ESG operating values tend to mitigate legal and regulatory risks, have the ability to attract and retain talent, and aim for the fair treatment of all stakeholders.
Very little economic activity occurs without some negative environmental impact. Much of the developed world has transitioned from an industrial to a more services-oriented economy, lessening the impact of such negative consequences as carbon emissions. However, much of the developing world has yet to make this transition, which continues to escalate environmental harm to the planet. While Rempart does not invest directly in emerging markets, we do invest in multinational corporations which operate or sell into the developing world. In addition, Rempart invests in North American based energy producers. While these companies do contribute to carbon emissions, they are also industry leaders in the transition to carbon neutrality.
As part of our investment analysis process, Rempart considers the environmental footprint of each company and engages with management to address its plan for remediation over time. Well-managed companies do not deny their environmental impact. Rather, they acknowledge it and develop a responsible plan to reduce it. We take careful assessment of these measures as companies with a serious but achievable plan are more likely to generate strong returns.
Public companies are vital contributors to society in a free-market economy. We believe that public companies should not be limited simply to maximizing returns to shareholders but should strive to serve their multiple stakeholders. Well-managed companies create growing employment, training, and a measure of security for their employees. Beyond that, they allow their host country to enjoy competitive productivity and to develop a strong tax base.
Companies that make meaningful contributions to society typically feature strong management and a motivated employee base. Since its inception, Rempart has assessed both the senior management and the board of directors of the companies that it considers for investment. Although judgement of the management team is important, the company’s board must not be overlooked as it is ultimately responsible for the recruitment, oversight, and compensation of senior management and for the long-term strategic direction of the enterprise. Furthermore, it is the board that has the final say on capital allocation, which is a critical factor to our financial analysis. Rempart believes that a sensible allocation of free cash flow, be it capital expenditures, company acquisitions, debt reduction, share re-purchases or dividends, will lead to superior performance for their shareholders in the long run.
Responsible investing is evolving, becoming increasingly sophisticated at a rapid pace. We are committed to continue to integrate ESG principles into our decision-making process