2021 ESG Annual Report

The other point to note here is that, in all these cases, we failed to carry the vote—which didn’t surprise us. We think it’s important to make a stand for what we believe to be best practice, even against the world’s biggest and most admired companies, and even when there appears to be nothing to gain. That stance was vindicated in these instances, where we quickly saw the outcomes that we championed: appointment of a lead Independent Director at Berkshire and a revised compensation package at General Electric. You might say we lost the vote, but we think we sent a useful message. Frustratingly, we are the only major asset management firm to bring this kind of transparency to our proxy-voting activities, and we continue to invite our peers to join us. But NB Votes, and even our broader proxy voting program, represents only one part of our engagement efforts. These efforts are just as deep and advanced in our fixed income business, where we often benefit from access to senior management as major capital providers, as they are in our equity business. Why is engagement so important to us? Because we believe it is much more likely to achieve real and lasting impact than exclusion or divestment. Engagement can achieve impact in the broad sense of changing management and corporate aims and behavior. It can also support impact in the specific sense of investment strategies that raise sustainability goals to the same level of priority as financial returns—an approach that we and our clients increasingly embrace as we establish robust track records for our new U.S. Equity and Private Equity Impact strategies. We are proud of the structure we are building, but we also recognize that this is a long project, both for us and our clients, and that we are always learning and improving. I have no doubt that our efforts today would fall short of the bar we intend to set in the years ahead. As we broaden and improve the datasets that we can access, and build the technology and human resources of our platform, our challenge will be to make the very best use of those resources as we can.

That is the key objective of our new ESG Advisory Council, which aims to bring the latest knowledge from academia, the non-profit sector and institutional asset owners into the heart of Neuberger Berman. Like our work with Brunel, and with the dozens of management teams we engage with, we think our ESG Advisory Council demonstrates how important the exchange of ideas is to us. That includes practical and technical things, like how to cut a credit portfolio’s emissions without cutting its yield, or where to find the best data, or how best to build collaborative groups for sustainability advocacy. But the bigger philosophical questions are in scope, too. If a firm sells a coal-powered energy plant to a less scrupulous operator, on paper that firm looks like a more palatable investment—but the plant might have been better managed, and perhaps even closed sooner, had the same firm held onto it. The environment hasn’t benefitted, so how should we, as investors, think about that decision? If regulation of sustainable business and investment becomes too stringent or too rigid, does it risk dividing the world into binary “investable” and “non- investable” companies or sectors? Will net zero be a reality sooner if we can only invest in Tesla, rather than capitalizing and encouraging net-zero transitions at others like BMW, Ford and GM? Learning together at these different levels—the nitty-gritty and the philosophical—is critical for us. It helps us develop the solutions our clients demand. It also helps ensure that we live the values we expect to see at the companies we invest in. We continue to hit the demanding targets of the industry-leading sustainability-based credit facility that we secured back in February 2020, for example—but there is still much more for us to do. In short, when we engage with company management and partner with clients on sustainability issues, we learn as much as we guide. Some commentators might consider these efforts a distraction. We know that they make us a better firm, and better investors. And we know that our clients are urging us to be more focused on them than ever.



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