Sustainability
Sustainability
Our approach to sustainability is driven by and fully integrated into our investment strategy. We see a clear and direct relationship between sustainability and long-term value. Driving governance changes (such as improving boards and management incentive structures) has been at the heart of our work since we started Cevian more than 20 years ago.
Today, governance and other sustainability considerations impact companies comprehensively, including their opportunities, revenues, costs, risks, employee engagement and retention, stakeholder sentiment, and valuations. Thus, when we do our deep analysis of the long-term fundamentals of investment candidates, we naturally assess their sustainability opportunities and risks.
We also benchmark our companies’ sustainability positioning and performance vs leading peers to find improvement areas. When we develop and advance value-creation plans for our companies, sustainability is a core part of our value-creation toolkit, alongside improvements to operations, corporate strategy, organizational structure and financial management. For these reasons, our sustainability analysis and value-creation work is led by our investment case teams, not a separate team or outsourced function.
Sustainability in remuneration
Our work to advance sustainability-linked value-creation at companies led us to identify two critical issues that can hamper sustainability progress. First, important goals often extend years or decades beyond the horizon of management teams in place today (such as “Net Zero by 2040”). Yet the companies will not achieve these long-term goals without making near-term progress. Second, many management teams do not believe that improvements in certain sustainability factors will have an impact on corporate financial performance during their tenures.
Drawing on more than 20-years of experience of working to improve companies, we realized that appropriate management incentives could be used to bridge these gaps, and to create accountability for unfulfilled sustainability ambitions. In March 2021, we made a public call for all European publicly-listed companies to integrate sustainability-linked metrics into their management incentives that are 1. Tied to the strategy of the company, 2. Measurable (because what is measured gets done) and 3. Transparent, so we and other stakeholders can see that the ambition level is high enough. Further, 4. the metrics should align with any important pledges that companies have made, such as net zero targets.
In Europe, shareholders have significant governance rights over pay plans, and we made clear to our companies that would not hesitate to use these rights to advance this approach.[1] This was a novel policy at the time, and we have engaged widely to advance it more broadly. Since then, a number of other managers have adopted a similar approach, and in some markets, such as the UK, the clear majority of companies now have sustainability metrics in their executive incentive plans.
Improving the sustainability of European companies is bigger than Cevian. There are many companies in Europe that have adopted metrics, but where the metrics are not good enough in terms of measurability or transparency. We continue to work to address this.
Cevian is a signatory of the UN Principles of Responsible Investment. Our approach to responsible investment is described here. To-date, Cevian has invested only in companies or headquartered in Europe. It cannot be excluded that, at some point in time, it invests in a company in another geography.
[1] For companies that fall under the purview of the US Securities and Exchange Commission, we acknowledge that this may not be practical. We may adjust our approach accordingly.