Burgundy | 2021 ESG Report

Engaging the ambiguity

ESG Today

Environmental

Social

Governance

Environmental, social, and governance (ESG) issues have been top of mind as the pandemic has accelerated change, exacerbated issues of social injustice and inequality, and given rise to mounting concerns about climate-related risks. As the world continues to evolve, ESG issues have become increasingly important to society, individuals, and investors globally.

Investors face a lot of ambiguity when considering these ESG factors. We see the prevalence of undefined terms and varying interpretations being taken in this space. With the largest ESG rating houses commonly applying different scores to the same companies, even among experts, considerations around ESG factors can fluctuate greatly.

There is also a spectrum of approaches, with ESG integration on one side and impact investing on the other. Integration attempts to incorporate ESG factors into risk-return analysis, while impact investing attempts to invest in companies for their environmental or social externalities. Socially responsible investing (SRI) sits in the middle and excludes socially sensitive sectors such as tobacco, alcohol, and gambling.

At Burgundy, our primary approach is one of ESG integration, which identifies ESG risks and occasionally recognizes ESG opportunities. Integrating ESG factors into our investment process improves our ability to manage risk, allows us to make better investment decisions, and ideally enhances our returns over the long term.

message from our cio

ESG Integration

Anne Mette de Place Filippini

senior Vice President,
chief investment officer,
Portfolio manager

Reflecting on our ESG Journey

ESG lives within our regional teams, and they take ownership for learning about emerging ESG issues and integrating them into their research processes. The approach our regional teams take to integrating ESG aligns with our investment philosophy, which emphasizes holding quality businesses for the long term and establishing a true understanding of how these businesses operate.

The more we know about how a company is run, the better equipped we are to assess these matters, which is why Burgundy places such credence on traveling to the businesses we invest in, walking the factory floors, and attending in-person meetings with the management teams. These meetings are a useful way for us to avoid unscrupulous executives and the unethical cultures they can engender. While COVID-19 has temporarily forced us to conduct these meetings virtually, we are eager to get back on the road once we can meet with management safely.

Like any thoughtful business owner, when we see a holding exposed to an ESG risk, we express our concerns to management. And because we approach investing as long-term business owners and spend years cultivating relationships with executives, management teams are willing to listen when we raise ESG concerns.

The Year in Review: Ongoing Learning

At Burgundy, we are constantly improving our educational offerings to our investment team by adding tools, introducing ESG workshops, and inviting guest speakers to host information sessions. We also conduct recurring team meetings on ESG, where we share best practices and relevant examples from our investments.

During our ESG investment meetings this year, Portfolio Managers shared inventive ways to measure ESG progress across their holdings, including online ratings and reviews, employee turnover rates, diversity ratios, safety incident rates, and carbon emissions levels. Colleagues also ran seminars on decarbonization initiatives, including changes to power grids as well as hydrogen as an alternative fuel source. These sessions help share learnings across teams, put numbers to energy transition investments needed, and build conviction in companies poised to benefit from the growth in electric vehicles, renewable power projects, and greener buildings. You can read more about some of these trends in our featured case studies.

Anne Mette de Place Filippini

senior Vice President,
chief investment officer,
Portfolio manager

Engagement

Engagement is a critical aspect of Burgundy’s integration approach to ESG. The engagement process involves interacting with management teams, both our holdings as well as prospective companies, and asking them the right questions. Our engagements are supported by our thorough bottom-up research, which involves both quantitative and qualitative analysis.

Sometimes, our bottom-up work uncovers a material ESG risk in companies that we do not have a position in, which may compel us to avoid buying a position altogether. When we discover an ESG issue in one of our holdings, our Portfolio Managers and Investment Analysts conduct research on the ESG issue and then engage with management. Usually, we engage through a meeting with management, but occasionally we engage by voting on shareholder resolutions related to the ESG issue or in writing to the management and/or board.

ESG in Action

Our approach is best showcased through the work we do with our portfolio companies. Please explore our featured case studies to learn more about our commitment to research, our relationships with management, and our attention to current trends.