Morningstar - Q3 2020 - 21

TC Energy and Indigenous Rights
A resolution asking for more disclosure
did not receive wide support.
Asset Manager

Vote

CI Financial

Against

CIBC

For

Desjardins Funds

For

Dynamic Funds

Against

Fidelity Investments

Against

Franklin Bissett

Against

HSBC Global Asset Mngmnt

For

Invesco

Against

Investors Group

Against

Mackenzie Investments

Mixed

Sun Life Global Investments

Against

NEI Investments

For

RBC Global Asset Mngmnt

Against

Scotiabank

Against

TD Emerald

Against

Source: Morningstar review of proxy voting records.

with such views [could] expose Amazon to
reputational damage and impair relationships with
key stakeholders." It earned the support of 35%
of shareholders.
But without much support from large asset
managers, vote outcomes on many shareholder
resolutions addressing institutionalized
discrimination remain relatively low.
In Canada, Harrington Investments filed
a resolution in April asking Scotiabank BNS
to consider potential impacts on human
rights: "Violations of human rights can
expose a company to liability for those abuses,
even if the company does not participate
directly in those abuses and tries to distance
itself from them. Scotiabank has exposed
itself to this liability by providing financing for
oil, gas and coal development projects
entangled in Indigenous rights violations,"
the resolution said.

The bank rejected the assertion, pointing to its
human rights statement and due-diligence
requirements in policies and procedures, and the
board recommended voting against the
resolution. It ultimately received close to 9% of
the shareholder vote.
A 2019 resolution involving TC Energy TRP received
a similar level of support (10%). Shareholders
asked for an annual report outlining how
TC Energy respects internationally recognized
standards for the rights of Indigenous peoples in
its business activities. The company contended
that additional reporting would impose a
significant administrative burden without providing
material new information to its shareholders.
While several Canadian asset managers did vote
for the proposal, overall support was low.
Cook points out that reputation is becoming
increasingly important for businesses,
both as a potential asset and a potential liability.
At the company level, businesses that
contribute to institutionalized discrimination
by failing to tackle racial discrimination
and bias in their products, workplaces, supply
chains, and marketing practices risk losing
their social license to operate. The recent
wave of protests calling for racial equality will
likely lead to stronger investor action beyond
the 2020 proxy season, addressing the
investment and reputational risks of racism
in its many forms.
"Fund investors need to take a close look at their
funds' voting records around discrimination
and inequality and call for stronger alignment with
recent statements supporting racial equality
and proxy votes," Cook says.
Ruth Saldanha is a senior editor with Morningstar Canada.

Wirecard Scandal:
Should Managers
Bet Big?
GREATER EUROPE

United Kingdom
"The biggest mistake I've made" is how
Alexander Darwall, manager of the European
Opportunities Trust JEO:UK, described his
decision to invest in German payments provider
Wirecard WDI:DE after he unloaded his stake
in the business. Darwall, who left boutique
fund group Jupiter last year to set up his own
investment firm, had more than 10% of his
portfolio invested in Wirecard-equivalent to
around GBP 80 million.
Wirecard is embroiled in scandal after it emerged
that GBP 1.7 billion listed in its accounts may not
actually exist. Shares in the company plunged
60% in a single day on the news. As the stock went
into freefall, it took European Opportunities
Trust with it: The trust-which is listed on the FTSE
250-was down more than 11.5% on June 18.
Many investors purposely seek out managers
with a high-conviction approach, those who
take big bets on the businesses they believe will
thrive over the long term. But when these
managers get it wrong, the ramifications on returns
can be significant. It raises the question: Should
fund managers be betting big?
Jonathan Miller, director of manager research at
Morningstar UK, says, "Managers with
concentrated portfolios are by nature making key
stock-specific calls. Clearly, they'll be doing
something different than the index, meaning the
potential upside and downside versus the
market can be pronounced."
A number of Morningstar Medalist fund managers
are noted for their bold calls. One such manager is
Nick Train, who runs the Silver-rated Finsbury
Growth & Income Trust FGT:UK. The GBP 1.8 billion
trust has about 12% of its assets in London Stock
Exchange Group LSE:UK, 10.8% in RELX RELX:UK,

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