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Responsible Investing

As long-term investors, we at Scheer Rowlett Investment Management Ltd. consider ourselves owners of businesses. We have, from the inception of our investment mandate, always considered environmental, social and corporate governance (ESG) factors to be important in our research and due diligence process. Our success as owners of businesses lies in the long-term success of the underlying businesses. Companies and businesses are integral parts of the communities and nations in which they operate and to whom they provide goods or services. In many respects, they imbibe and reflect the values of the society in which they operate. Businesses that fail to recognize and appreciate the interdependence with society fail to create value for all stakeholders in the long run.

We believe that appropriate attention to ESG issues makes good business sense and that companies with sound practices and proper consideration of stakeholders are more likely to outperform those who do not consider these factors as important.

As investors who have always considered ESG factors when investing, we have evolved our approach to investment analysis, while staying true to our value investment philosophy.  That evolution also includes factors that we include in our ESG analysis – we continually strive to improve upon and update our analysis approach to include any new, relevant data.  We view this as a journey, and not a destination, hence it requires continually thinking and refreshing our approach.

Integration

As part of our bottom-up investment process, we believe that ESG issues should be considered in determining a fair valuation as they can have a fundamental impact on the companies in which we are investing.  Our investment process begins with screening for potential investments based on valuation measures (price/earnings, price/cash flow and price/book value), capital utilization (ROE, ROCE) and balance sheet strength. Once potentially attractive opportunities are identified, we incorporate ESG considerations using the following approaches:

  • Company ESG analysis – using a proprietary tool, we gather data on all companies, using company, management and third party data, to assess an ESG score.
  • Valuation – we then incorporate the ESG assessment into a company’s valuation (either adjusting the discount rate, multiple, or replacement value calculation).
  • SRI Strategy - Since 2006, we have run a Socially Responsible Investment Strategy employing a screen based on an exclusionary list supplied by a third-party provider. These screens are applied in addition to the analysis described above, which are used for all investment strategies managed by us. Note that we do not use negative screening in our SRA Canadian Equity strategy.

Engagement

As investors, we continually engage in ongoing dialogue (on many perspectives, including ESG factors) with management and the boards of the companies in which we invest.  We believe that change can happen by raising issues and then following up with companies periodically to reinforce these conversations and discussions.  We report on these activities on a regular basis to our clients through updates in our quarterly reports. 

When and if a company were to ignore the issue(s) that we raise, we will follow-up with the company by raising the issue again, and where necessary, discuss the issue with the appropriate board member to ensure that our message is heard. Should we feel the issue is still not addressed, we may consider voting against management and the board in the next proxy vote.  We firmly believe that change can be achieved by being an active owner, rather than divesting of a position.

Collaborative Initiatives

Promoting and collaborating with other industry participants on issues relating to ESG can help move change forward (see list of collaborative initiatives below).  In addition, as mentioned earlier, we have managed a Socially Responsible Investment Strategy since 2006, which is available for investors.

United Nations – Principles of Responsible Investing (UNPRI)

In October 2018, we became a signatory to the United Nations – Principles of Responsible Investing (PRI) initiative, focusing on incorporating ESG factors into stock investment criteria.

Canadian Investor Statement on Diversity & Inclusion

We signed the new Canadian Investor Statement on Diversity & Inclusion, an initiative coordinated by the Responsible Investment Association (RIA) in September 2020.

Scheer Rowlett ESG Guidelines and Analysis Documents

Proxy Voting Policy

Responsible Investment Policy

Quarterly Engagement Examples

 

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