How to make companies act better? Pick up the phone

Written by Christine Dawson on 2nd Jul 2018

Dirty Fashion is a sickening read. Companies in the fashion industry supply chain are guilty of some atrocious crimes against the environment and against the people that live near and work in their factories, often in the poorest places in the world.

Last year, Austrian fibre manufacturer Lenzing was one of the companies tarnished by the Changing Markets Foundation report, exposing its poor practice.

In November 2016, it states, more than 40 residents of three villages in West Java, all located right alongside the Lenzing-owned South Pacific Viscose (SPV) factory, were poisoned and sickened after a leak exposed them to sulphuric acid.

You might wonder why sustainable fund manager WHEB invests in a company like Lenzing. At WHEB’s annual investor conference (AIC) we heard from the fund manager about how it engaged with Lenzing as soon as it spotted the report in June last year. We also heard from the company itself about how it is trying to turn things around and earn the investments of those who want to see that their money is doing good. 

WHEB is an ‘impact investor’ which means it will only invest in companies providing solutions to sustainability challenges. On many counts Lenzing does meet that criteria. Among its green credentials it has developed environmental solutions to viscose and fabric fibre production and has innovated ‘closed-loop’ production cycles which means potentially polluting by-products are captured and resources reused where possible.

The report, which was damning of the viscose industry, held Lenzing up as a leader, though also not perfect. 

So what does a sustainable impact investor like WHEB do when a company it thought met its criteria of providing much needed solutions turns out to be one of the culprits adding to the planet’s problems? 

According to Seb Beloe, WHEB partner and head of sustainability research, the fund manager gets on the phone to ask said company how it’s addressing the issue. In this instance, Seb said, that has meant spending a lot of time talking to Lenzing about its strategy in light of the Dirty Fashion report.

“There was an accident at the facility in West Java and it was addressed in this report,” Lenzing sustainability director, Peter Bartsch, explained at the AIC.

“We thought, ‘we are compliant so it can’t be the case,’ but we checked and found there was room for improvement actually.”

Peter went on to tell the conference how Lenzing is now implementing uniform standards for all its operations across the globe. 

“We made a mistake that when the accident happened there was a leakage of gas and when that happened that was only handled on a regional level, it was not globally communicated. 

“We asked what can we try and do to avoid the recurrence of this type of accident.

“The outcome was we decided we would have one global standard for the whole group. In Asia we were compliant but were not going beyond compliance, and this is not good enough today.” 

As a result, WHEB has kept its holding in Lenzing.

Read the Good Investment Review, from Good With Money and 3D Investing, to find out which impact funds, including WHEB, really do what they say on the tin

‘Impact investing’ is bandied about a lot in financial services these days. It can be used by big fund managers to describe what they are doing when they choose to invest in a company which has one isolated positive social or environmental impact on the world. Sadly, this can mean big funds more or less investing as usual but under the attractive banner of impact investing. 

In contrast, WHEB seems to really have impact at the heart of what is doing. 

You can read about how WHEB chooses which companies to invest in. And as you might expect, only looking for companies coming up with solutions to sustainability issues reduces the investible universe somewhat. Despite that, in the 12 months to the end of May, WHEB’s Sustainability Fund delivered returns of 12.5 per cent to investors. 

You can also have a look at the issues on which WHEB engages companies in its engagement report. For some, mentions of human rights issues and poor environmental practices might be enough to send them despairing to a cash account that doesn’t require grappling with the practices of investee companies. Others will see a fund manager working with imperfect companies it believes do have a positive overall impact, and working to help them maximise that. 

With a total £243 million of assets (as of June 2018), WHEB is what one investor at the conference called ‘a drop in the ocean’ in the fund management industry. Despite that, other fund managers looking for a way into the growing ethical investment market should pay close attention to WHEB’s compelling model which has positive impact woven right through it.

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