The Responsibility team and AB’s investment teams partner on an engagement with a Japanese electronics company.
Saskia Kort-Chick: AB’s focused Responsibility Team collaborates with portfolio managers and analysts to integrate ESG throughout the investment process. But how does the interaction work in practice? Let’s take a real life example.
An AB portfolio manager, Atsushi Horikawa, owned a position in a leading Japanese electronics company. Part of the investment rationale was our view that the company’s strong electric vehicle battery technology was an attractive investment opportunity in a world needing rapid decarbonization. But we also know that lithium-ion batteries need cobalt. And most of that cobalt supply comes from mines using exploitative slave labor, often children, in the Democratic Republic of Congo.
Atsushi Horikawa: So, on one hand, the company offered environmental opportunity as a leading producer of a key technology for a lower carbon future. On the other hand, it potentially involved social risk, with slave labor embedded in its supply chains. We identified this issue while investigating news reports that one of the firm’s suppliers had used child labor for another material, mica. This prompted us to work with Saskia on the Responsibility team to do a broader review of their supply chain, which identified cobalt as a more material risk.
Saskia Kort-Chick: There are many well-known social challenges in the cobalt supply chain, and there’s a lack of transparency and traceability. We wanted to get comfortable that the company had appropriate policies in place and—more importantly—had the right process to manage these risks. During our engagement, we could not get comfortable with the answers the firm provided.
Atsushi Horikawa: In AB’s engagement policies, disinvestment is really a last resort. We find that repeated engagement by investment teams and Responsibility team members working together yield the best results. Fortunately, even though we were selling our shares in this case, we told the company’s management that we would be happy to help them establish more robust audits of their third-party sourcing. The company realized that they had an issue—and not just because we were divesting—so they took us up on this offer. Over the next year, we followed up with the company and were pleased to see progress. We’ve encouraged them to continue on their journey.
Michelle Dunstan: This Japanese company is just one example of our engagements with the companies we invest in, all over the world, which we believe leads to better outcomes for our clients and society. The partnership between AB’s investment teams and the Responsibility Team triangulates our research, sharpening our focus on the key issues companies face. We work to better understand and impact these issues through collaborative engagement.
- Michelle Dunstan
- Global Head—Responsible Investing