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Philosophy: a holistic stakeholder approach to identify the value of our investments
The Mackenzie GLC Team believes that acknowledging a broader range of stakeholders positively impacts a company’s ability to create value over the long-term. The team understands that a company’s ability to successfully engage with employees and their local communities, governments, customers, and suppliers, helps build a durable competitive edge and sustainably grow cash flows. These stakeholder related themes are quantified, and then incorporated into the in-depth fundamental company, industry, and macroeconomic research, that the team undertakes. By allowing for a more holistic view of a company, and the broader society in which it operates, the team is not only better able to identify the potential pitfalls of an investment, but also those with superior prospects.
To maximize the long-term value of holdings, the GLC Team engages with and exerts its influence on companies to ensure they consider risks and opportunities as they relate to these stakeholders.
How ESG factors are integrated in the investment process
01. ESG Research
The Mackenzie GLC Team looks beyond ESG scores and ratings, by fully embedding material ESG consideration into our fundamentally driven research process.
To start, we understand that there are considerable benefits for companies that can identify and engage with a broad range of stakeholders. These benefits include providing fresh perspectives to bolster innovation, saving time and money by mitigating surprises, identifying potential risks before they cause harm, and building trust and goodwill. Additionally, this process creates transparency and accountability to all stakeholders, including us as investors. We evaluate these, and other ESG related considerations, as part of our primary research, incorporating an extensive range of sources. These sources include company disclosures and management discussions, industry expert interviews, as well as third party ESG research providers.
Analysts and Portfolio Managers have considerable expertise and experience with the companies they cover. ESG considerations are fully integrated into the day-to-day fundamental research that each Analyst and Portfolio Manager conducts.
02. ESG Assessment
Next, we assess the financial impacts from any ESG considerations uncovered during our research. This includes the materiality, probability, and duration of the impact as well as the different ways it will alter the financial position of a company. For example, a company that spends capital to install carbon capture technology might face offsetting benefits such as paying a lower carbon tax as well as reducing its cost of capital.
Finally, we identify those indicators that are most relevant for each company and incorporate them into our fundamental valuation framework.
03. ESG Integration and Engagement
Through this process, ESG issues are explicitly and systematically incorporated into our investment analysis, stock selection, and portfolio construction, allowing us to better manage risks and improve returns.
The Mackenzie GLC Team exerts its influence through engagement with company management and voting to improve ESG practices, change outcomes and improve disclosure. Identifying underappreciated ESG improvers can provide an additional source of return.
Waste Connections Inc (WC) - Case Study
01. ESG Research
The Mackenzie GLC team identified material Social and Environmental factors where Waste Connections© proactive stance not only mitigated long-term risks to its business, but also enhanced its competitive positioning, while providing new avenues to sustainably grow.
02. ESG Assessment
From an Environmental perspective, the team considered the potential long-term costs associated with methane gas released from landfills, as well as the economics related to capturing the methane and producing Renewable Natural Gas (RNG). The team also noted attractive investment opportunities to divert waste by expanding recycling capabilities.
From a Social perspective, the company has leveraged the principle of Servant Leadership to focus on the needs of employees, which in turn results in more engaged, productive, and longer tenured employees.
03. ESG Integration and Engagement
The Mackenzie GLC team believes that Waste Connections© proactive management of these issues has resulted in several direct financial benefits, including lower expenses and new opportunities for revenue generation. Further, this increases our confidence in Waste Connections’ management team, and their ability to navigate secular shifts in the industry and continue to sustainably grow cash flow.