SKAGEN’s portfolio managers have always sought out undervalued companies. While some of these may have a controversial past, they must also demonstrate a willingness to change. As such, we favour companies that create value through improvements related to environmental, social and governance (ESG) factors, amongst others.
Excess return is generated when companies develop in a positive way, either through our engagement with the company or their own improvements. As such, picking the right companies that are on a positive ESG trajectory can be a source of significant outperformance and is in line with SKAGEN's value-based investment philosophy of finding undervalued companies where we can see clear catalysts for revaluation.
From a long-term perspective, we believe that companies that focus on employees’ working conditions will attract the best candidates and have greater credibility in the societies where they act; companies that focus on reducing their environmental impact will be better positioned to improve their reputation and brand value to generate more sales; and, not least, those companies that are focused on treating all shareholders fairly will earn higher investor trust and most likely higher stock market valuations. In short, companies with a sustainable business model tend to be the most resilient and more profitable in the long run.
Generating return is key
Our primary objective remains to generate the best possible risk-adjusted return for our clients. Our engagement in the companies we own through our funds has one aim: to create or unlock value within these companies.
We believe active ownership means engaging and creating a dialogue with companies in order to influence them to make small or large improvements. Exclusion are used as a last resort as it means we no longer will have the power to influence the company.
We engage directly with companies in order to ensure as open and honest dialogue as possible.
SKAGEN’s funds have highly concentrated portfolios and although we only own a fraction of the world’s publicly traded companies, we strive to contribute to and engage with every single company that we own.
Typically, this is done through direct communication with a company in private, to allow honest and open discussions to take place. We believe that continuous dialogue ensures the best possible development of the funds’ investments, and thereby the best risk-adjusted returns for our clients.
Follow SKAGEN’s engagement
SKAGEN uses its voting rights actively in order to secure our unit holders’ interests at company annual general meetings and extraordinary general meetings, and we have close to 100% voting record.
Since July-2019, SKAGEN has developed a proprietary ESG reporting tool to provide an accessible way of collecting and reporting engagement data with companies on ESG-related issues. Receiving continuous updates on ongoing engagements not only makes them easier to track, but also makes it easier to analyse the effects of interacting with a company. For example, linking ESG-scores to engagement dates and case statuses allows us to provide performance scores and track ESG progress.
Companies on the observation list
When it comes to the companies currently on our observation list, we would like to see improved corporate governance, compliance with international laws and conventions and good structures to prevent new breaches from occurring. Most importantly, we choose to cooperate with the companies in order to increase our chances of succeeding.
We apply various methods that we have tried and tested over more than 20 years’ work with sustainability. The specific methods and approaches used will vary depending on the company. We may practise active ownership exclusively as owners, but also in cooperation with others, either through existing organisations or within groups that we put together with a given goal in mind. It is well documented that cooperation with others increases the chance of success. Influence can be put on different parts of a company and management team, which means that it is crucial to have a solid understanding of a company’s strategy and culture.
In our communication, we use the tagline “The art of common sense”, which has always guided our investments as well as our approach to integrating sustainability into our investment process.
We believe common sense also means focusing on companies’ future intentions – if these are serious and realistic – we will be committed to working actively with them in their journey towards improvement.