Pan European Equities Update 30 June 2021 - BAILLIE GIFFORD
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BAILLIE GIFFORD Pan European Equities Update 30 June 2021
Contents
02 Executive Summary Baillie Gifford Investment Management (Europe) Limited
03 Commentary is a wholly owned subsidiary of Baillie Gifford Overseas
Limited, which is wholly owned by Baillie Gifford & Co.
05 Performance Persons resident or domiciled outwith the UK should
11 Portfolio Overview consult with their professional advisers as to whether they
require any governmental or other consents in order to enable
12 Governance Summary them to invest, and with their tax advisers for advice relevant to
16 Governance Engagement their own particular circumstances.
This document contains information on investments which
18 Voting does not constitute independent research. Accordingly, it is not
19 Transaction Notes subject to the protections afforded to independent research and
Baillie Gifford and its staff may have dealt in the investments
20 Legal Notices concerned.
All information is based on a representative portfolio, new
client portfolios may not mirror the representative portfolio
This document is solely for the use of professional exactly. As at 30 June 2021, in US dollars and sourced from
investors and should not be relied upon by any other Baillie Gifford & Co unless otherwise stated.
person. It is not intended for use by retail clients.
Canada
Important Information and Risk Factors
Baillie Gifford International LLC is wholly owned by Baillie
Baillie Gifford Overseas Limited provides investment
Gifford Overseas Limited; it was formed in Delaware in 2005
management and advisory services to non-UK
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Professional/Institutional clients only. Baillie Gifford Overseas
which Baillie Gifford Overseas Limited provides client service
Limited is wholly owned by Baillie Gifford & Co. Baillie
and marketing functions in North America. Baillie Gifford
Gifford & Co and Baillie Gifford Overseas Limited are
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The Manager is not resident in Canada, its head office and
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principal place of business is in Edinburgh, Scotland. Baillie
Overseas Limited and holds a Type 1 and Type 2 licence from
Gifford Overseas Limited is regulated in Canada as a portfolio
the Securities & Futures Commission of Hong Kong to market
manager and exempt market dealer with the Ontario Securities
and distribute Baillie Gifford’s range of collective investment
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Telephone +852 3756 5700.
OSC as an exempt market and its licence is passported across
Baillie Gifford Investment Management (Europe) Limited
all Canadian provinces and territories. Baillie Gifford
provides investment management and advisory services to
Investment Management (Europe) Limited (‘BGE’) relies on
European (excluding UK) clients. It was incorporated in
the International Investment Fund Manager Exemption in the
Ireland in May 2018 and is authorised by the Central Bank of
provinces of Ontario and Quebec.
Ireland. Through its MiFID passport, it has established Baillie
Gifford Investment Management (Europe) Limited (Frankfurt South Africa
Branch) to market its investment management and advisory
services and distribute Baillie Gifford Worldwide Funds plc in Baillie Gifford Overseas Limited is registered as a Foreign
Germany. Similarly, it has established Baillie Gifford Financial Services Provider with the Financial Sector Conduct
Investment Management (Europe) Limited (Amsterdam Authority in South Africa.
Branch) to market its investment management and advisory
services and distribute Baillie Gifford Worldwide Funds plc in Japan
The Netherlands.
Baillie Gifford Investment Management (Europe) Limited Mitsubishi UFJ Baillie Gifford Asset Management Limited
also has a representative office in Zurich, Switzerland pursuant (‘MUBGAM’) is a joint venture company between Mitsubishi
to Art. 58 of the Federal Act on Financial Institutions UFJ Trust & Banking Corporation and Baillie Gifford
("FinIA"). It does not constitute a branch and therefore does Overseas Limited. MUBGAM is authorised and regulated by
not have authority to commit Baillie Gifford Investment the Financial Conduct Authority.
Management (Europe) Limited. It is the intention to ask for the
authorisation by the Swiss Financial Market Supervisory
Authority (FINMA) to maintain this representative office of a
foreign asset manager of collective assets in Switzerland
pursuant to the applicable transitional provisions of FinIA.
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000 bailliegifford.com
Copyright © Baillie Gifford & Co 2009. Ref: 53299 INS QR 0248
South Korea Israel
Baillie Gifford Overseas Limited is licensed with the Financial Baillie Gifford Overseas is not licensed under Israel’s
Services Commission in South Korea as a cross border Regulation of Investment Advising, Investment Marketing and
Discretionary Investment Manager and Non-Discretionary Portfolio Management Law, 5755-1995 (the Advice Law) and
Investment Adviser. does not carry insurance pursuant to the Advice Law. This
document is only intended for those categories of Israeli
Australia
residents who are qualified clients listed on the First
Baillie Gifford Overseas Limited (ARBN 118 567 178) is Addendum to the Advice Law.
registered as a foreign company under the Corporations Act
2001 (Cth) and holds Foreign Australian Financial Services
Licence No 528911. This material is provided to you on the
basis that you are a “wholesale client” within the meaning of Past Performance
section 761G of the Corporations Act 2001 (Cth)
Past performance is not a guide to future returns. Changes in
(“Corporations Act”). Please advise Baillie Gifford Overseas
investment strategies, contributions or withdrawals may
Limited immediately if you are not a wholesale client. In no
materially alter the performance and results of the portfolio.
circumstances may this document be made available to a “retail
client” within the meaning of section 761G of the Corporations Potential for Profit and Loss
Act. This material contains general information only. It does
not take into account any person’s objectives, financial All investment strategies have the potential for profit and loss.
situation or needs. Stock Examples
Qatar
Any stock examples, or images, used in this paper are not
The materials contained herein are not intended to constitute an intended to represent recommendations to buy or sell, neither is
offer or provision of investment management, investment and it implied that they will prove profitable in the future. It is not
advisory services or other financial services under the laws of known whether they will feature in any future portfolio
Qatar. The services have not been and will not be authorised by produced by us. Any individual examples will represent only a
the Qatar Financial Markets Authority, the Qatar Financial small part of the overall portfolio and are inserted purely to
Centre Regulatory Authority or the Qatar Central Bank in help illustrate our investment style. A full list of portfolio
accordance with their regulations or any other regulations in holdings is available on request.
Qatar.
Oman
Baillie Gifford Overseas Limited (“BGO”) neither has a
registered business presence nor a representative office in
Oman and does not undertake banking business or provide
financial services in Oman. Consequently, BGO is not
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Capital Market Authority. No authorization, licence or
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and risks of investments.
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000 bailliegifford.com
Copyright © Baillie Gifford & Co 2009. Ref: 53299 INS QR 0248Executive Summary 02 Product Overview Pan European Equities is a regional equity strategy that aims to generate positive long-term total returns through investment in European equities. We believe the European equity markets offer active managers a broad selection of high-quality companies capable of delivering attractive and sustainable earnings growth for shareholders. Risk Analysis Key Statistics Number of Holdings 40 Typical Number of Holdings 30-50 Active Share 91%* Rolling One Year Turnover 34% *Relative to MSCI Europe Index. Source: Baillie Gifford & Co, MSCI. We aim to invest in what we think are Europe's great growth companies. Some have experience enduring success over many years and provide us with insights into what will lead to durable success in younger companies into the future Culture is an underappreciated intangible asset of a business and assessing it forms an important part of our investment process Our focus is on the long term and we will continue to strive to abstract ourselves from short-term noise Baillie Gifford Key Facts Assets under management and advice US$486.8bn Number of clients 730 Number of employees 1488 Number of investment professionals 300
Commentary 03
Given that most of us have been locked down in our homes for have an opportunity grow in to very large and attractive
long periods over the past 14 months, it really isn’t surprising markets and so their ability to be adaptable to changing
that the market continues to be heavily influenced by binary environments is essential in order to execute
narratives such as lockdown beneficiaries versus beneficiaries of on this vision. It was interesting to draw out the similar factors
re-opening. This has clearly had some effect on our relative which had kept the various organisations going for such a long
performance in 2021 so far. However, rather than spending time period. Of course, there were elements of path dependence and
struggling with the false dichotomy of the growth versus value luck involved. Take the Republic of Venice for instance: in the
debate or trying ninth century, the city had a fight on its hands to establish itself
to pick next week’s winners, we have sought to abstract as the pre-eminent port and trading hub on Italy’s Adriatic coast.
ourselves from this noise and focus on the big picture. The town of Comacchio had geographical advantages over
Early in the quarter the European Equities Team held one Venice and had it not successfully sacked that town in 866,
of our bi-annual ‘reading days’. In these reading days we get Venice might not have become one of the world’s greatest
together and discuss a book and a topic, both of which act as a mercantile cities in history and we might be visiting
springboard to reflect on how we invest. We have been doing Comacchio, rather than Venice, as tourists. Path dependence
this for many years now and they provide us with a great and luck aside, so many of these common features stressed the
opportunity for introspection as an investment team. We importance of people, adaptability and a shared mindset over
discussed Hamilton Helmer’s book 7 Powers which is a great many generations; what most of us would call an
journey around the sources of competitive advantage and how organisation’s ‘culture’.
a business might develop ‘power’. We then turned to ‘durable Assessing whether a company has a special culture forms
organisations’. We tried to uncover what it was that had made a part of our 10-question research framework.
variety of companies and institutions so durable, what might It is also possibly the most difficult part of a business
have led to their downfall and what we can learn from them in to analyse. As outsiders, we can only make judgements based
our search to identify Europe’s great growth companies. This off the research that we have done and the conversations we
provided a platform for an interesting and varied debate with have had held on a company’s culture. Ultimately, though, we
team members proposing examples such as Investor AB, a can’t completely appreciate the strengths and weaknesses of a
portfolio holding, as well as the Republic of Venice which company’s culture given that we are not employed there. In our
thrived as a small city-state for over 1,000 years. experience,
As growth investors, a business’ durability is very we only come to fully understand a company’s culture through
important to us. We are investing in companies which we think many years of ownership and relationship building. OurCommentary 04
decades long ownership of Atlas Copco to its CEO in 2020. As we engage with management teams, we
is the best example we have of this. This investment has also want to hear how they are keeping their teams motivated and
been very instructive for us. Its customer-centric, innovative because, while it can be very tempting to revel in
entrepreneurial culture has been enabled by a highly the successes of the present, it is essential that they remain
decentralised operating model and mantra of ‘there is always a resolutely focused on the
better way’ and these are now examples of features we look for long term in order to maintain their competitive edge. This
in companies we invest in today. doesn’t just apply to digitally-enabled businesses, though.
Clearly, though, we do not have the benefit of decades’ Rapid change will always create opportunities
long relationships with every company we are evaluating. for businesses broadly. Returning to our example of
Consequently, it becomes incumbent upon us to spend time Atlas Copco, it has consistently shown the capacity for
meeting with a variety of stakeholders at a company in our innovation and reinvention. Over many years it has found new
research process. Before investing in Adyen, we of course met verticals for growth, the latest of which is vacuum technique in
with the company’s founders but we also had discussions with the fast-growing semiconductors industry.
customers and even a competitor, among others. This creates a It is proof that an innovative, entrepreneurial culture can stave
necessarily long gestation process. It might be easier to not off or at least delay the inevitable maturation and slow decline
bother and instead just focus on the accounts. However, the of its business that orthodox theory talks so much about. Just
accounts cannot tell us how a company might adapt in difficult like in investment, those businesses which can look ahead and
times, how they might be opportunistic in the future or how think creatively will win over the long term.
confident we can be that a company has the structures and Finally, it is worth reflecting on Rachleff’s Law which
people in place to continue innovating ahead of the neatly sums up the power of a special culture. This ‘law’ posits
competition. The actions and decisions taken over our, that when a lousy team meets a great market, the market wins;
hopefully, very long ownership period will be taken by people, meaning that the attractive dynamics of this great market will
and human factors are inherently less forecastable than a line mitigate the weaknesses of the team at
item on an income statement. Therefore, trying to understand a company. However, when a great team meets a great market,
the culture that binds an organisation together and governs its something special happens. As investors, we are trying to
decision-making becomes essential if you want to imagine capture the latter scenario. Companies which can combine a
what that organisation has the potential to become. special culture and a large market opportunity have the
The durable organisations we analysed each faced potential to be as durably successful as some of the
challenges, some of which they overcame and some which organisations we studied on our reading day and to generate
caused terminal decline. One challenge which was common to outlier-like returns for the portfolio. Although, replicating
all of them was the difficulty in maintaining a culture across Venice’s 1,000-year stand as an independent republic is
generations given the transitory nature of employment and of possibly a bridge too far!
human beings, as well as the need to stay ahead of the
competition. Perhaps the most vivid examples of such Portfolio
challenges lie in elite sports teams where success has become
distinctly cyclical. These challenges still apply to companies While short-term quarterly outperformance is nice to see, it
today. However, there is an additional complicating factor: the is essential that we remain resolutely focused on identifying
pace of change in the digital age. Whether it is the stunning and owning the companies which will generate the returns over
advances we are seeing in medical science or how technology the long term that have become expected of us. Significant
has torn down barriers to entry in some industries, companies portfolio activity was limited to the complete sale of the
are being faced with growth, innovation and competition holding in Inditex and a reduction in the holding in L’Oréal. In
coming at them much quicker than before. This has only been the case of Inditex, we maintain our admiration for the company
compounded by the effects of the pandemic on society’s and its management team but feel that the company is reaching
behaviours. Allegro, Poland’s leading ecommerce marketplace maturity, making it difficult to envision Inditex meeting our
and a portfolio holding, saw three years’ worth of progress in return target of doubling over five years. Therefore, we decided
one during the pandemic, according to fully exit Inditex. Like Inditex, we have great respect for
L’Oréal and its management team. However, we decided to
reduce the position in favour of other investment opportunities
which we believe offer attractive potential rewards.
The views expressed are those of the author. They reflect
personal opinion and should not be considered as advice or a
recommendation to buy, sell or hold a particular investment.Performance - US Dollar 05
Performance Objective
+2-3% p.a. gross of fees over rolling 5 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 10.2 7.7 2.5
YTD* 9.7 12.3 -2.6
1 Year* 49.8 35.8 14.0
3 Years 17.4 9.3 8.1
5 Years 16.6 11.0 5.6
Since Inception 11.4 7.0 4.4
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 30 April 2013.
Figures may not sum due to rounding.
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI.
US dollars
Discrete Performance
30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 28.0 4.2 -1.7 9.8 49.8
Benchmark (%) 21.8 5.9 2.5 -6.3 35.8
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI.
US dollarsPerformance - Euro 06
Performance Objective
+2-3% p.a. gross of fees over rolling 5 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 9.2 6.8 2.4
YTD* 13.1 15.8 -2.7
1 Year* 41.9 28.6 13.2
3 Years 16.7 8.7 8.1
5 Years 15.1 9.5 5.6
Since Inception 12.9 8.4 4.5
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 30 April 2013.
Figures may not sum due to rounding.
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI.
euro
Discrete Performance
30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 24.7 1.8 0.8 11.3 41.9
Benchmark (%) 18.6 3.5 5.1 -5.0 28.6
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI.
euroPerformance - Sterling 07
Performance Objective
+2-3% p.a. gross of fees over rolling 5 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 10.1 7.6 2.5
YTD* 8.5 11.1 -2.6
1 Year* 34.0 21.5 12.5
3 Years 15.6 7.6 8.0
5 Years 15.9 10.3 5.6
Since Inception 13.1 8.5 4.6
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 30 April 2013.
Figures may not sum due to rounding.
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI
sterling
Discrete Performance
30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 31.8 2.5 2.0 13.1 34.0
Benchmark (%) 25.4 4.2 6.4 -3.5 21.5
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI.
sterlingPerformance - Canadian Dollar 08
Performance Objective
+2-3% p.a. gross of fees over rolling 5 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (% p.a.) Benchmark (% p.a.) Difference (%)
3 Months* 8.6 6.2 2.4
YTD* 6.6 9.1 -2.5
1 Year* 36.2 23.5 12.7
3 Years 15.0 7.1 7.9
5 Years 15.5 9.9 5.6
Since Inception 14.3 9.7 4.6
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 30 April 2013.
Figures may not sum due to rounding.
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI
Canadian dollars
Discrete Performance
30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 28.0 5.6 -2.3 14.4 36.2
Benchmark (%) 21.8 7.3 1.9 -2.4 23.5
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI.
Canadian dollarsPerformance – Australian Dollar 09
Performance Objective
+2-3% p.a. gross of fees over rolling 5 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (% p.a.) Benchmark (% p.a.) Difference (%)
3 Months* 11.8 9.3 2.5
YTD* 12.7 15.4 -2.7
1 Year* 37.4 24.6 12.8
3 Years 16.8 8.7 8.1
5 Years 16.4 10.8 5.6
Since Inception 15.9 11.3 4.6
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 30 April 2013.
Figures may not sum due to rounding.
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI
Australian dollars
Discrete Performance
30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 24.3 8.2 3.5 11.9 37.4
Benchmark (%) 18.2 10.0 8.0 -4.5 24.6
Benchmark is MSCI Europe Index.
Source: StatPro, MSCI.
Australian dollarsPerformance – Attribution 10 Stock Level Attribution Top and Bottom Ten Contributors to Relative Performance Quarter to 30 June 2021 One Year to 30 June 2021 Asset Name Contribution (%) Asset Name Contribution (%) Kinnevik 0.6 Farfetch 2.6 NIBE 0.6 Kinnevik 2.0 Adevinta 0.6 Sartorius Stedim Biotech 1.2 Zalando 0.5 IMCD 1.2 Reply Spa 0.4 Adevinta 1.1 IMCD 0.4 NIBE 1.1 adidas 0.3 Zalando 1.0 Kering 0.3 Beijer 0.7 Zalando Se 0.3 Investor 0.6 Richemont 0.2 Games Workshop 0.6 Renishaw -0.9 Prosus -1.2 Prosus -0.9 Spotify -1.0 First Derivatives -0.5 First Derivatives -0.8 Farfetch -0.4 Just Eat Takeaway.com -0.6 Avanza Bank -0.3 Delivery Hero -0.5 Softcat -0.2 LVMH -0.5 Atlas Copco -0.2 Hargreaves Lansdown -0.5 Nestlé -0.2 Kingspan -0.5 Roche -0.2 Novozymes -0.4 LVMH -0.2 Bechtle -0.4 Source: StatPro, MSCI. Pan European Equities composite relative to MSCI Europe Index. Some stocks may have only been held for part of the period.
Portfolio Overview 11
Top Ten Largest Holdings
Stock Name Description of Business % of Portfolio
IMCD Speciality only chemical distributor 5.3
Prosus Media and e-commerce company 4.3
Zalando Online fashion retailer 3.7
Atlas Copco Industrial compressors manufacturer 3.6
adidas German producer of sports shoes and equipment 3.6
Spotify Online music streaming service 3.5
Games Workshop Manufacturer and retailer of table top wargames and miniature figurines 3.4
Avanza Bank Banking 3.4
Adevinta Provides internet based services 3.3
NIBE International heating technology company 3.0
Total 37.0
Sector Weights (%)
1 Consumer Discretionary 29.1
6
2 Industrials 18.0
1
3 Information Technology 15.3
5 4 Financials 12.9
5 Communication Services 11.5
6 Health Care 6.3
7 Consumer Staples 2.3
4
8 Materials 2.2
2 9 Cash 2.5
3
Geographical Location Weights (%)
8 1 Sweden 24.6
7 1 2 UK 17.1
6 3 Netherlands 15.9
4 Germany 14.4
5 5 France 8.9
6 Norway 5.6
7 Switzerland 4.4
2 8 Italy 3.8
4 9 Ireland 1.5
10 Denmark 1.4
3 11 Cash 2.5
Totals may not sum due to rounding.Governance Summary 12
Voting Activity
Votes Cast in Favour Votes Cast Against Votes Abstained/Withheld
Companies 29 Companies 2 Companies 5
Resolutions 594 Resolutions 2 Resolutions 9
In 1948, the United Nations Universal Declaration of Human Rights
was the first rights declaration that explicitly applied to everyone,
regardless of race, gender, economic circumstance and beliefs. It is
as relevant as ever today
We engage with our holdings on business and human rights issues,
encouraging management teams to understand the growing
expectations on their businesses and support the protection of human
rights within their sphere of influence
A lot of work is discretely going into improving human rights
standards across international business and supply chains, much
taking place under initiatives such as the UN Global Compact, to
which we are a long-standing signatory
Company Engagement
Engagement Type Company
Corporate Governance Hargreaves Lansdown plc
Environmental/Social ASML Holding N.V., Hargreaves
Lansdown plc
AGM or EGM Proposals Delivery Hero SE, HelloFresh SE, Kering
SA, Rightmove plc, Schibsted ASA
Executive Remuneration Hargreaves Lansdown plc, Kering ASA
Notes on company engagements highlighted in blue can be found in this report. Notes on other company
engagements are available on request.Governance Summary 13
Rights, responsibilities and sustainable returns Many centuries later, the adoption of the Universal
Declaration of Human Rights by the United Nations
The oldest known bill of rights is thought by many General Assembly on 10 December 1948 was the final
historians to be the Cyrus Cylinder. Following the act in one of the most remarkable achievements in human
conquest of the City of Babylon by the armies of Cyrus history. Out of the ashes of the second world war, an
the Great, the first king of ancient Persia, Cyrus international committee headed by the charismatic and
apparently freed the slaves, declared that all people had dynamic former US First Lady Eleanor Roosevelt and
the right to choose their own religion and established Vice Chair PC Chang of China managed to draft a
racial equality. These and other decrees were recorded on ‘universal bill of rights’ that was endorsed by almost
a baked-clay cylinder in the Akkadian language with every country in the world (there were a small number of
cuneiform script. abstentions).
Recognising this ancient object, now residing in the Before then, there had been a number of hugely
British Museum, as the world’s first charter of human significant milestones towards universal rights such as
rights, the script has been translated into all official the Magna Carta (1215), the French Declaration of the
languages of the United Nations and its provisions Rights of Man and of the Citizen (1789), and the US Bill
parallel the first four Articles of the 1948 Universal of Rights (1791), but there had never before been a
Declaration of Human Rights. declaration of rights that explicitly applied to everyone,
regardless of race, gender, economic circumstance and
beliefs.
Members of the United Nations Commission on Human Rights rehearsing in the Delegates Lounge for a television show You and Human Rights.
Left to right are: Professor Rene Cassin, France; Dr PC Chang, China; Quincy Howe, CBS (Columbia Broadcasting Service), moderator; Mrs Eleanor Roosevelt, US,
Commission Chairman; Dr Charles Malik, Lebanon, and Mr E Kelen of UN Radio Division.
© United Nations. https://www.flickr.com/photos/un_photo/37464345502/in/album-72157677599327615/Governance Summary 14
Despite being over 70-years-old today, the Universal From this relatively recent, tentative start, human
Declaration is still the foundation for all international rights awareness, and many accompanying dilemmas, are
human rights law, and the fundamental rights that it sets now everywhere in business, not least because of the role
out are as relevant as ever. One of the reasons for the of social media and increasing NGO and employee
Declaration’s ongoing significance and longevity is the activism in holding companies to account. The resulting
principle of ‘universalism’ that runs through the reputational risk from the mishandling of human rights
document. At the insistence of Vice Chair PC Chang, the issues is ensuring that the ‘s in esg’ – social – is rapidly
Chinese diplomat, philosopher and playwright whose reaching parity with the environmental (‘e’) and
membership of the drafting committee was of pivotal governance (‘g’) issues in terms of commercial
importance, there was no direct mention of any specific importance. Whether this is considered by all to be
religion with respect to the principles, only freedom of appropriate or not, many businesses have learned the hard
religion as a right. This ensured that the principles in the way that stakeholder expectations have changed beyond
Declaration were articulated as natural, inalienable rights all recognition from the Milton Friedman thesis that the
that could not be arbitrarily revoked by monarchs, clerics sole responsibility of the corporation was to make money
or politicians. for shareholders.
While this brief history of rights is of innate academic In the past few years alone, Rio Tinto’s Chief
interest, human rights is a topic of rapidly growing Executive Jean-Sébastien Jacques was forced to resign
currency and importance in investment management and after a number of aboriginal cultural sites were destroyed
the wider business community. during the company’s mining operations; numerous
Until relatively recently, the responsibility for fashion companies have been publicly named and shamed
protecting human rights fell on sovereign states, for allegedly having forced labour in their supply chains;
supported by a number of international agencies and non- companies providing products or services linked to
governmental organisations (NGO). However following detention centres in the US and China have found
several high profile incidents in the latter 20th century, themselves in the cross-hairs of campaign groups around
not least the perceived lack of intervention by oil and the world; and corporations have been accused of being
gas companies during the trial and execution of Nigerian tacitly ‘part of the problem’ in the lack of progress in
community activist and environmental protestor improving the human rights and economic empowerment
Ken Saro-Wiwa in 1995, the United Nations became of black, minority and first nation citizens in a number of
increasingly interested in the role that businesses could countries.
play in supporting the protection of human rights. This While many people tend to think of issues as modern
culminated in human rights being specifically included in slavery and discrimination against minority groups when
the United Nations Global Compact, launched in 2000 as they think of human rights in the economy, there are also
a framework for socially responsible business operations, a range of evolving areas where different conceptions of
embodied in the first two of 10 principles: employee and consumer rights are coming to the fore.
“Businesses should support and respect the protection These include the right to digital privacy, gender and
of internationally proclaimed human rights (Principle identity rights in the workplace and the right to safer
One); and businesses should make sure that they are not working conditions for all, the latter starkly highlighted
complicit in human rights abuses (Principle Two)”. by some of the inequalities of the pandemic. Human
rights are also increasingly relevant to discussions on the
This was followed up by the much more detailed
best way to ‘net-zero’ emissions, taking account of issues
United Nations Guiding Principles on Business and
such as the economic rights of workers in the fossil fuel
Human Rights, endorsed in 2011. More recently, many
industry during a ‘just transition’ and the right to
businesses have also recognised the role that they can
protection from the adverse physical impacts of climate
play in supporting the achievement of the UN Sustainable
change. Technology platforms are also grappling with the
Development Goals, particularly with respect to basic
at times competing rights of free speech on one hand and
universal needs such as primary healthcare, nutrition and
a content stewardship duty of care towards protected
sanitation.
characteristics groups and vulnerable users online.Governance Summary 15
For all of the above reasons, we are engaging with our
holdings on business and human rights issues, supported
by additional research in this area being undertaken by
the Baillie Gifford Governance and Sustainability Team
and a newly established Investment Human Rights
Research Group. We encourage all management teams to
understand the growing expectations on their business to
understand their obligations and support the protection of
human rights within their sphere of influence.
Our experience to date is that the ambitious,
innovative and growth-oriented kinds of companies that
we aim to hold typically have no interest whatsoever in
being even remotely connected to human rights abuses,
and are often passionate to do what they can to support
progress in this area. While it can be hard (and at times
counter-productive) to take bold public positions in
highly sensitive areas, very considerable amounts of
thought and commitment are discretely going into
improving human rights standards across international
business and supply chains, much of this taking place
under the auspices of invaluable initiatives such as the
UN Global Compact, to which we are a long-standing
signatory.
Human rights are at their most difficult and
contentious when countries at different stages of
development place differing emphasis on the trade-offs
between individual rights and collective national security
or economic development goals. Investors and companies
alike are nevertheless still expected to be positive
advocates for human rights in these circumstances, or at
the very least not complicit in abuses, even though most
rightly understand the limitations of their sphere of
influence and the very significant risks from missteps in
this arena. For our part, we will report back on our work
in this critically important and rapidly evolving area in
our client and regular investment stewardship reporting.Governance Engagement 16
Company Engagement Report
ASML Holding N.V. Our meeting with Lucy Lau, Sustainability Strategy Manager, delved into ASML's climate-
related targets and perspectives. The company is underpinning the continuation of
Moore's Law thanks to its increasingly advanced lithography machines to print silicon
wafers onto semiconductor chips. While the latest machines are increasingly power-
hungry, they also enable products that in turn allow for greater energy efficiency. There are
therefore important trade-offs here which need to be examined. We discussed the
company's scope three emissions, which it began reporting on in 2019 - an area which
Lau acknowledged is still a work-in-progress. Indeed, to galvanise more progress, ASML
has made a public plea to encourage suppliers to accelerate their own reporting. In our
view, ASML's reporting, targets and narrative stand out well: it is one of the few companies
that has 1.5C-compliant targets for direct emissions, and it openly recognises it must take
more action. In terms of next steps, we will continue to reflect on how properly costed
resources such as energy, water and greenhouse gases might disrupt the geographic
layout of the current semiconductor supply chain. In addition, we plan to deepen our
understanding of the extent and pace of climate-related trade-offs associated with the
industry. We will also continue to explore the physical risks of climate change - both in
terms of disrupting access to fresh water (critical for the big chip fabricators) and the 30-
40-year outlook for sea level rising/flooding.
Hargreaves Lansdown plc On a call with the Chair, Deanna Oppenheimer, we encouraged improvements in ESG
practices and disclosures. We were pleased to hear that this has been a particular focus
for the board over the past year and with her assurance progress will be evident in the
annual report. Discussion also covered the appointment of three new non-executives and
a number of senior management changes. Attention is being paid to diversity and inclusion
at all levels within the company. Later in the quarter we had a call with the remuneration
committee chair to discuss proposed changes including the incorporation of ESG
performance conditions into the annual bonus assessment.
HelloFresh SE We had a call with Dominik Richter, CEO of HelloFresh, in the lead up to their 2021 annual
general meeting. The topic of the call was a proposed remuneration policy that contained
a cap on total pay that we were concerned presented a potential misalignment of
outcomes between the executive team and shareholders. In the course of the call, Dominik
made a point that resonated with what we are hearing from other holdings: the corporate
governance regime in Germany seems more concerned with preventing bad behaviour at
traditional firms than promoting good behaviour at the new generation of founder-led tech
companies. When combined with a political climate that is sceptical towards large
executive pay outcomes, the result is an unwillingness to risk bad publicity, even if the
result presents a misalignment with long-term shareholders. In light of the very informative
call we had with Dominik we decided to support the policy.
Kering SA We held a meeting with General Counsel and Investor Relations to discuss resolutions for
Kering's 2021 AGM. The meeting followed our participation in the company's 2020
Corporate Governance Roadshow, plus our 2019 engagement with Kering's lead
independent director and remuneration committee chair. During those prior engagements,
we had voiced concerns about the structure of Kering's long-term incentive plan (LTIP) -
concerns that had led us to vote against management's remuneration proposals at
previous AGMs. Encouragingly, our recent meeting revealed the steps Kering has taken to
directly address our concerns. Specifically, it has moved away from trigger vesting and
towards more ambitious and stricter LTIP targets, plus it has incorporated gender diversity
and biodiversity ESG metrics. Thanks to the Environmental Profit & Loss accounting
practices, Kering had already identified its total land footprint as being 350,000 hectares.
The LTIP biodiversity target of converting 200,000 hectares linked to its supply chain to
more sustainable regenerative agricultural practices - about 57 per cent of total land
footprint - seems ambitious in this context. Overall, Kering demonstrated thoughtful
consideration of principles and best practice for adopting robust ESG metrics in the LTIP,
namely: materiality, alignment to sustainability strategy, measurability and target stretch. It
is also considering extending the share rewards offering to a wider range of workforce
beneficiaries in future. We are satisfied with the outcome of our engagements to date.Governance Engagement 17
Company Engagement Report
Schibsted ASA We engaged with Schibsted regarding its executive remuneration policy ahead of the
annual meeting. We have maintained an ongoing dialogue with the company on this topic
in recent years, including voting against at previous meetings. Our discussions have been
positive, and the company understands that we intend to be a constructive shareholder.
Improvement from last year can be seen in the higher weighting of performance-based
awards. Furthermore, there is an appropriate weighting of pay-outs which incentivise
performance and risk taking. While we have encouraged the company to strengthen
threshold vesting requirements for future long-term incentive, we did not see this as
sufficient reason to withhold support from the pay resolution at this year's meeting.
Furthermore, we consider a vote in favour to be a demonstration of good faith and trust in
the ongoing process of stewardship. We look forward to future conversations on ESG
topics.Voting 18
Votes Cast in Favour
Companies Voting Rationale
ASML, Adevinta, Adyen Nv, Atlas Copco B, Bechtle AG, We voted in favour of routine proposals at the aforementioned
Beijer Ref, Carl Zeiss Meditec, Dassault Systemes, meeting(s).
Delivery Hero AG, Epiroc B, FinecoBank Banca Fineco
S.p.A., HelloFresh SE Ordinary, Hexpol AB, IMCD Group
NV, Investor, Just Eat Takeaway.com, Kering, Kingspan
Group, Kinnevik, L'Oreal, Mettler-Toledo, Nibe Industrier
AB 'B' Shares, Reply Spa, Rightmove, Schibsted B,
Spotify Technology SA, Takeaway.com, Zalando SE,
adidas
Votes Cast Against
Company Meeting Details Resolution(s) Voting Rationale
Kering MIX 19 We opposed a resolution which sought authority to
22/04/21 issue equity because the potential dilution levels
are not in the interests of shareholders.
Kingspan Group AGM 5 We opposed the resolution to approve the
30/04/21 Remuneration Report due to concerns regarding
the treatment of awards granted to a retiring
director.
Votes Abstained
Company Meeting Details Resolution(s) Voting Rationale
Beijer Ref AGM 11.G We abstained on the election of a director who is
15/04/21 non-independent due to tenure because of low
board independence.
Beijer Ref AGM 17.A-17.C We abstained on three resolutions relating to the
15/04/21 Executive Share Option Plan due to lack of
performance metrics.
Kering MIX 16 We abstained on a resolution which sought
22/04/21 authority to issue equity because the potential
dilution levels are not in the interests of
shareholders.
Kinnevik AGM 13.E, 14 We abstained on the election of James Anderson
29/04/21 as board chairman due to adherence with our
conflict of interest policy.
L'Oreal MIX 17 We abstained on a resolution which sought
20/04/21 authority to issue equity because the potential
dilution levels are not in the interests of
shareholders.
Companies Voting Rationale
Reply Spa Italian governance allows shareholders to submit 'slates' of auditors
for election at the AGM. We voted in favour of the 'slate' where the
majority of auditors currently sit on the statutory auditors' board.
This is routine and non-contentious.
Votes Withheld
We did not withhold on any resolutions during the period.Transaction Notes 19
There were no new purchases during the period.
Complete Sales
Stock Name Transaction Rationale
Inditex We remain impressed by Inditex's strengths as a traditional fast fashion retailer and the quality
of its management team. Although Inditex is in a good position to continue to grow for a long
time, its pedestrian growth rate makes it hard for us to see how this business can appreciate
meaningfully in value over the next decade. There are other opportunities we are more excited
about. We therefore decided to sell the position in Inditex.Legal Notices 20
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