Canso believes it has an overriding duty to act in the best long-term interests of its clients. In this fiduciary role, Canso believes environmental, social, and governance (ESG) issues can affect the performance of issuers included in the investment portfolios it manages but that the effect can vary substantially across issuers. Canso also recognises that applying the Principles for Responsible Investment (“PRI”) may better align its clients with the broader objectives of society. Effective August 5, 2019, Canso is a PRI signatory. Although Canso is a PRI signatory, Canso will always invest in a manner that is consistent with its fiduciary obligations and responsibilities to its clients.
Canso believes that it remains difficult to demonstrate, amid the multitude of factors that have a bearing on corporate performance, a discrete causal relationship between ESG factors and credit quality. In Canso’s opinion there is rarely a direct or standalone transmission from many ESG factors and long-term profitability. It is also Canso’s experience that when companies move to address weakness in corporate practices, including practices related to ESG considerations, these inflection points may represent attractive investment entry points.
Canso’s bottom-up fundamental research process incorporates a variety of factors that impact company cash flows and long-term sustainability. ESG considerations are just a few of these factors. Canso has always taken a long-term view and when it purchases a bond, Canso is willing to hold it until maturity. For debt, especially with a long term to maturity, it is essential Canso has confidence the borrower has a sustainable business model.
Canso incorporates explicit ESG considerations in its research documentation. At the issuer level, an analysis of each of the ESG factors is separately outlined with a focus on how these factors might affect a company’s cash flows and ultimately a Canso Rating/Recovery.
The PRI suggests signatories actively engage with issuers on ESG related matters. There are limitations to Canso’s ability to influence corporate behaviour as Canso’s primary business is in a lending capacity. Canso as a lender does not wield the same influence on an issuer as an equity holder as lenders do not normally elect directors or bring forward shareholder proposals. However, when appropriate Canso will:
- Engage issuers on ESG factors of concern (e.g., in run-up to issuance);
- Collaborate with other bondholders for more effective engagement, normally through the Canadian Bond Investors Association;
- Engage the company on governance concerns during debt restructurings; and,
- Vote proxies in accordance with Proxy Voting and Corporate Action Policy.