As with most investment analysis, ESG investing always begins with data . What isn’t measured cannot properly be managed. But data isn’t gathered for the sake of data. A critical project for any ESG investor is combatting the ongoing lack of coverage and timeliness of ESG data, which is why we are knitting our data science insights ever more tightly into our ESG analysis, to ensure that we are identifying the lacunae that need to be filled and looking for the solutions in the right places. As we continue to integrate data science into ESG, we also continue to integrate ESG analysis across a range of our investment strategies. Years of development of our Sovereign Sustainability Assessment Framework, which we consider industry-leading, has facilitated the launch of a dedicated sustainable strategy in Emerging Markets Hard Currency Debt. The breadth of that ESG integration is regional, as well as across asset classes. This year has seen us expand our ESG capabilities into China, where we created a localized version of the NB Materiality Matrix, our measure of which ESG factors are most material for each industry. Our Hague-based Global Sustainable Equity team is now settled in, and new leadership for our more established U.S. Sustainable Equity team offers the opportunity to further integrate this global franchise. I believe that one reason why ESG integration comes naturally to Neuberger Berman is that our ESG products and initiatives tend to have their origins not in top-down directives, but in our traditional research and analysis and in the work we have done in close partnership with our clients. One great example of that in the past year was putting the finishing touches to a £1.3 billion multi-asset credit portfolio for the U.K.’s Brunel Pension Partnership, one of Europe’s leading sustainable investors. This mandate integrates a climate-transition plan to achieve net-zero emissions by 2050, with multifaceted interim targets. Discussions with Brunel on the scope, targets and risk-management parameters of that mandate drew upon our previous experience—for example, the development of our Thermal Coal Involvement Policy and our Climate Value-at-Risk analytical tools, as well as two years
of TCFD reporting and implementing our corporate climate strategy. But those discussions also gave us a wealth of new insights into what it takes to develop a serious approach to net-zero investing. Those insights now inform climate-related analysis across our product range and influence the design of new strategies; they also gave us confidence that the pledge we made when we signed up to the Net Zero Asset Managers Initiative in November 2021 is realistic and attainable. The centrality of engagement to the way we pursue ESG and sustainable investment goals will be clear to any reader of our NB Votes web page, the market-leading initiative that we launched in 2020 (see page 53 for details). It reveals the sheer speed with which we have managed to scale the volume of constructive engagement we are involved in, with some of the world’s largest and most important companies. The page offers details from 62 Annual General Meetings in 2021 alone. It also shows how engagement is not only about encouraging change among laggards, but also making great businesses realize even more of their potential. I’ve had many people ask me why Neuberger Berman opposed the election of four Berkshire Hathaway board members back in May 2021. The answer is that, while Warren Buffet is a legendary investor and it’s unsurprising that he is both CEO and Chair, that structure necessitates a strong lead independent director, which Berkshire lacks. We also voted for the firm to begin reporting its climate-related risks and opportunities— despite the obvious difficulties this presents to such a decentralized business—because we regard these factors as critically important, and an incredible business track record doesn’t exempt you from evolving standards of corporate disclosure. Around the same time, while we were delighted to see the extension of H. Lawrence Culp’s contract as CEO of General Electric as it struggled with the pandemic, we voted against his compensation package, which raised his potential payout while lowering his performance targets. Such arrangements neither align with industry standards nor reflect broader concerns about social inequality—and it’s also very difficult to see how they enhance shareholder value.
2 2021 ESG ANNUAL REPORT
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