Insurance Australia Group investors are putting the board on notice to swiftly address the topic of potential exposure to business interruption policies during COVID-19, given the heightened uncertainty has weighed on the company’s value.
Several insurance analysts have estimated IAG’s stock is pricing in heavy $1bn to $2bn losses from business interruption claims, yet investors are frustrated the company has not publicly addressed the risk or provided modelling on possible outcomes.
IAG — which counts brands including NRMA, CGU and Swann Insurance in its stable — is among large local insurers navigating the pandemic and tough questions around the validity of related policies.
Ethical Partners Funds Management, which holds $100m in IAG shares, has hit out on the issue. The firm has been asking management about it since April, and raised the matter with the insurer’s board last month ahead of its annual general meeting.
“It is certainly holding the stock back so the board is actually standing in the way of realising value for shareholders,” said Ethical Partners’ investment director Nathan Parkin.
“We think that by explaining their position more fulsomely that will unlock the value and it won’t be vulnerable (to a take over).
“The board needs to take this issue off the table … they need to say something sooner rather than later.”
Ethical Partners’ letter to the board — sighted by The Australian — also raised concerns around IAG’s continuous disclosure obligations given large estimates in the market around business interruption claims.
“We believe IAG should better inform the market on this important issue, with appropriate BI (business interruption) disclosures, rather than allowing the information vacuum to be filled with broker and analyst speculation,” the letter said.
“Given the potential materiality (or immateriality as the case may be) of IAG’s BI claims, it could even be argued that the company now has an ASX Listing Rule 3.1 disclosure obligation in view of the analysis.”
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Investors and shareholders have long had a sneaking suspicion that a "club" exists when it comes to choosing ASX listed directors. Now it appears there is proof.
Amid the reluctant (and limited) bloodletting at Crown Resorts' annual meeting last week, the board ructions at Boral and the looming annual meeting season, large investors are becoming increasingly fed up with the lack of talent on boards of ASX-listed companies.
Ethical Partners investment director Nathan Parkin says the report effectively proves his long-held concerns that there is a directors "club". The former Perpetual fund manager would like to see people with more relevant industry experience rather than the same people, often with valuable legal or accounting experience, appointed to the board.
"That small, small cohort of directors control a lot of companies in Australia and it's very much an invitation-only club."
"We've been saying for a while that the directors are the only people that nominate new directors and they often come from within the same pool.
"The director pool is quite small and recycled too often and this report proves that and I think that's something that has to change going forward."
Parkin says it means that boards too often attract like-minded people, meaning that if existing board members are unlikely to challenge management, they'll look to appoint passive directors like themselves.
OPINION PIECE: By Nathan Parkin, Investment Director and Co-Founder of Ethical Partners
High profitability across numerous Australian industry sectors, many of which are largely consolidated with few players and perform with higher margins than global peers, has led to much wealth creation for shareholders.
However, questions remain over where to from here for earnings growth and can the market achieve higher profit growth from our current base?
There are three broad conditions that could help sustain and potentially increase the rate of earnings growth.
Firstly, companies need to have their Environmental, Social and Governance (ESG) house in order to have the social licence to continue to expand and seize new growth opportunities in a rapidly changing world.
The escalation of ESG awareness, conversation, technology, regulation and news flow are all contributing to ESG issues becoming more visible and company reporting more transparent.
While market and public reaction to poor ESG outcomes can be swift – as in the recent cases of AMP, Westpac and Rio Tinto – by contrast, good ESG practices can contribute to lower risk and the ability to achieve higher growth over the long term.
For more see the media link below
The demands are growing louder for companies to fully disclose the extent to which government cash handouts and tax concessions are impacting their results.
With the August earnings season poised to be dominated by COVID-19, Matt Nacard, chief executive officer of asset manager Ethical Partners Limited, said companies must also disclose how debt or rental repayment deferrals were artificially inflating results.
"We believe that every listed company needs to outline the full extent of COVID-oriented assistance received," Mr Nacard said. "It will materially impact company results across most sectors."
Australia urgently needs to boost transparency requirements for mining and energy companies to ward against tax avoidance, offshore secrecy and businesses seeking unfair tax breaks, as government coffers are hit by COVID-19, new analysis has found. Ethical Partners Funds Management in partnership with Publish What You Pay Australia — a coalition of 30 anti-corruption, human rights, environmental, union and faith-based organisations — will release the new report on Monday. The research, undertaken in the three months to June 23, benchmarked the top 20 ASX-listed companies across the mining and energy sectors. It found just five — BHP, Fortescue, Rio Tinto, Iluka and Woodside Petroleum — had renounced the use of “artificial arrangements” for tax optimisation.
The research also showed just 47 per cent of companies reported to the Australian Taxation Office under the Voluntary Tax Transparency Code in the 2019 financial year, compared to 67 per cent in financial 2017. Ethical Partners’ sustainability and advocacy manager Robyn Parkin said the issue of tax and disclosure for mining and energy companies was top of mind, given the COVID-19 economic turmoil and debate about social licences. “As we’ve all seen with the budget blowout, taxation is going to be an even more important issue going forward,” she added.
“It’s more about finding the (company) leaders, and those leaders in transparency will actually give us peace of mind that there is good governance all around
“... We prefer not to get to the point of AGMs (annual general meetings) and voting — we’d prefer companies to try and be leaders in this space rather than being adversarial.”
Last week’s federal budget update forecast a 4 per cent drop in company tax take this financial year due to a slowing economy.
Ethical Partners manages about $2bn, and is part of a growing contingent of investment firms focused on environmental, social and governance screens as well as financial metrics for choosing portfolio companies.
Boutique group Ethical Partners Funds Management is one of 117 signatories pushing for the NSW state government to implement its Modern Slavery Act from next year. In an open letter to State Premier Gladys Berejiklian, the coalition of organisations, academics, lawyers and community leaders has called on her to expedite the passage of the NSW Modern Slavery Act so it can be brought into force from 1 January. The original act was legislated in 2018. On commencement, commercial organisations with employees in NSW and an annual turnover between $50 million and $100 million will need to submit a statement to the Anti-Slavery Commissioner, outlining the steps they have taken to reduce the risk of modern slavery across their operations and supply chains. Ethical Partners Funds Management sustainability and advocacy manager Robyn Parkin is one of the signatories listed in the letter.
The securities regulator has put corporate Australia on notice it will be scrutinising how the COVID-19 pandemic will be treated in their accounts during the upcoming reporting season, demanding the hit from the virus to be explained clearly to investors.
The Australian Securities and Investments Commission wants companies to provide clear and meaningful disclosures on both negative and positive impacts stemming from the pandemic on asset values, supply chains, and provisions, while also giving an update on solvency.
“In the current environment, the quality of financial reports and related disclosures is more important than ever for investors and to maintain confident and informed markets,” said ASIC chairman James Shipton.
Ethical Partners Funds Management investment director Nathan Parkin said he would be looking for companies “to be explicit” about the benefits of lower rental payments and any government assistance.
“A number of companies have already reported better-than-expected revenue and profits through COVID-19 but have not been specific about the impact of one-off reduced expenses. This is important to establish a normal run rate for profit in financial 2021,” he said.
Australia's largest oil and gas producer, Woodside, is headed for a clash with investors over demands to slash greenhouse gas emissions as influential shareholder advisors recommend defying the board and backing calls for bolder climate action. Motions pushing for Woodside to commit to hard targets to curb direct emissions and emissions created by the end-users of its products – known as "Scope 3" emissions – are likely to attract considerable support at an investor meeting on Thursday after key proxy advisory firms urged shareholders to vote against the board.
Woodside, which has an ambition for "net zero" emissions for its own operations by 2050, has urged shareholders to vote down the resolutions, saying it was supportive of the Paris climate accord's goals to limit global warming well below 2 degrees above pre-industrial levels and its gas exports were helping to displace higher-emissions fuel sources such as coal-fired power.
Woodside shareholder Ethical Partners, which supports the climate resolutions, said disclosure was important and the introduction of Scope 3 goals across the resources sector was an inevitability. "Scope 3 is inevitable and important," Ethical Partners investment director Nathan Parkin told The Age and Sydney Morning Herald. "It won't be solved overnight, but we think it should be disclosed."
Australia’s largest listed company, CSL, has defended its position as an ethical provider of needed blood plasma that is made into life saving medicines, after a report raised concerns around the possible exploitation of donors in its quest for liquid gold.
The $142 billion company was the subject of the controversial report by Credit Suisse’s ESG team, led by Phin Glover and Gretel Janu, that investigated whether the biotech was setting up collection facilities in disadvantaged areas of the United States, one of the few countries where donors can be paid to donate plasma.
CSL says the US supplies about 70 per cent of the world’s plasma requirements, and without the paid model there would not be enough plasma to meet global demand. Penny Stephens
Nathan Parkin, of Ethical Partners, said his firm already held a maximum underweight position, citing valuation and ESG risks as the main reasons, and that this positioning had hurt relative performance to date.
He said his firm had analysed the plasma collection issue as part of the work into human rights and supply chains, and key issues were the vulnerability of some donors and possible health effects around the frequency of donations.
Ethical Partners Funds Management’s Nathan Parkin said the banks could continue to pay dividends, but if the external situation worsened, they could instead step up their dividend reinvestment plans to conserve cash flows. That would involve the issue of shares as some investors would opt to reinvest over taking cash. “That could be a better way to handle it,” Mr Parkin said, as retail investors would take a “serious hit” if bank dividends were suspended entirely because they accounted for 42-55 per cent of the major banks’ shareholder registers. “There is obviously going to be a need for debt provisioning that reflects the economic impacts. That will impact their [banks] level of dividends,” he added. “We don’t think that negates their ability to pay any dividends.”
Ethical Partners Funds Management chief executive Matt Nacard says ethical risks of investing in the listed aged care sector are too high, and areas like human rights are gaining increased focus by its investors. "Aged care deals with human beings in their most vulnerable state," he said. "[Yet] many of these companies don’t have human rights polices – which was quite astounding to us." The listed aged care stocks are not part of Ethical Partners' invastable universe. Ethical Partners, along with the Australasian Centre for Corporate Responsibility, said in their submission to the royal commission that it strongly believes companies that treat the world and people in a better way will do better than the broader market in the long run. "We made this submission because we believe shareholders have got a really important and often under-utilised voice to speak for things like this," said Robyn Parkin, Ethical Partners' head of sustainability research and advocacy
Tap and toilet manufacturer GWA International is among the share market's most shorted stocks. It's also attracting investors who see potential in the company's role in greening office buildings. Up, down, sideways: few issues get more heated than the future direction of the residential housing market. Which goes some way to explaining the division around toilet and tap manufacturer GWA International, the company that brought the dual flush loo to Australia. The $1 billion company - often dismissed as a "boring industrial" - is now among the market's 10 most shorted stocks, though that short interest has eased slightly since November when it peaked at 15 per cent, according to shortman.com.au. The owner of the bathroom brand Caroma and New Zealand's Methven, said stronger signs were emerging that the housing market could return to growth in 2021. Helpfully too, the coronavirus wasn't affecting supply from Chinese plants so far. GWA shares are far above their $2.88 October lows, having nearly reached $4 in the past weeks, before falling back slightly after the results.
In the business world, crises don't come much bigger than the scandal engulfing Australia's oldest bank, Westpac, over allegations it breached anti-money laundering laws 23 million times and may have financed child pornography and exploitation. Fund manager Nathan Parkin, who was formerly deputy head of equities at Perpetual and is now investment director at Ethical Partners, is not convinced the damage will just be in the short term. "The shocking nature of the allegations, and especially the exploitation element, does affect the brand long term and could affect the flow of business in mortgages and deposits," says Parkin, who has been reducing his fund's already underweight exposure to Westpac in the days since the crisis began.
Investors and proxy advisers ramped up pressure on Westpac’s embattled board on Monday, demanding answers, and further action on compliance failings and accountability for 23 million alleged breaches of the law. Ethical Partners Funds Management investment director Nathan Parkin said more accountability was required at Westpac as large fines would result from the Austrac action. “In the midst of cash (Austrac penalty) going out the door of shareholders’ funds ... who says that’s OK, let’s just go on?” Mr Parkin said. “The bank needs to show someone is accountable for the large fine and penalties that are likely to occur,” he added, noting accountability had to occur at a “high level”. Ethical Partners owns Westpac stock, but moved underweight on the shares in May, after paring its stake on concerns the bank had been “too slow to act” on its capital position and cutting its dividend. It has further reduced its Westpac position on the back of the legal allegations.
Westpac Banking Corp.’s board stood behind its management team on Friday, offering embattled chief executive Brian Hartzer some respite from mounting criticism over allegations of a breach of money-laundering laws, including failing to detect payments linked to child abuse. The “allegations clearly indicate there may have been a lack of attention to” human-rights issues “within the corporate culture of Westpac,” Ethical Partners Funds Management CEO Matt Nacard and Chief Investment Officer Nathan Parkin said in a statement. The fund has sold some of its Westpac shares since the allegations were aired, they said.
After a horror October so far, the Aussie sharemarket is the cheapest it’s been since 2015. The benchmark ASX 200 index is trading on a 12-month forward price-to-earnings ratio of 14.7 after starting the month at 16, according to JP Morgan. Nathan Parkin of Ethical Partners Funds Management is similarly inclined to see more opportunities than risks from the sell-down. The turmoil has “shaken people out of positions at the wrong price for them and at the right price for us” is how Parkin puts it. It’s not often that you get a chance to top up your positions across your portfolio at a good price, but now is one such time, he says. Parkin is not as gloomy about the housing market as many, and sees great value in building materials firm CSR and has added to his position in recent days.
Have you participated in the market's rotation and do you believe the slight re-rating of value will stick?
A very crowded momentum trade, including low volatility and high P/E growth stocks, shifted somewhat towards value and cyclical stocks during September. Our funds are heavily positioned in value stocks, cyclicals and small caps and have started to benefit from this shift. We think there are good grounds for this to continue. (For the other six questions click through to the full article)
Superannuation fund, Christian Super has announced the appointment of Ethical Partners Funds Management, an independent boutique with funds under management (FUM) of $1.6 billion, for its Australian equities mandate.
Ethical Partners Funds Management has launched the Ethical Partners Australian Share Fund, an ethical fund which will invest in 30 to 50 stocks on the S&P/ASX 300.
Dexus, Vicinity and Mirvac are three REIT operators taking the biggest steps to identify supply chain risks that are going to become an issue for large Australian companies when new federal and state anti-slavery legislation comes into effect next year, fund manager Ethical Partners says. Dexus, which has already has an embargo policy for suppliers that do not meet its modern slavery standards, Vicinity, which reviewed security contracts at its malls and changed some providers based on their employment practices, and Mirvac which is about to take a "deep dive" into its cleaning services supply chain, are the leading companies Ethical Partners chief executive Matt Nacard said.
Most sustainability reports fail to address matters of substance and provide information filled with positive optics but limited depth, according to the $1.5 billion Australian investment firm Ethical Partners. Ethical Partners published its annual ethical standards report last week, concluding that while transparency around sustainability issues is generally improving, it is of a "low standard" except for a handful of high achievers. The fund manager evaluated 214 stocks, of which 58 companies improved disclosure and 14 regressed. The 14 companies where reporting got worse were marked down on account of deteriorating worker safety or emissions, underpayment of employees and an absence of clear targets in relation to saving water, energy or waste, among other things.
It’s the ultimate feel-good investment, a fund that eschews tobacco, coal, alcohol, gambling, firearms and big pharma. Supporters say that these funds are making the world a better place but critics believe that environmental, social and corporate governance strategies are little more than the latest sophisticated money-making marketing tool. "To us it’s about buying everyday companies that do things well," says Ethical Partners Funds Management chief executive Matt Nacard.
Sitting in the "middle of nowhere" in Cambodia, surrounded by kids with few of the privileges enjoyed by the average Australian, tends to provide some perspective. "You get some clarity around what you want to do," says Matt Nacard, co-founder of Ethical Partners Funds Management. Accompanying Nacard on that school-building mission was Nathan Parkin, then a star stock picker and fund manager at investment powerhouse Perpetual. Accompanying Nacard on that school-building mission was Nathan Parkin, then a star stock picker and fund manager at investment powerhouse Perpetual. The two had first met professionally many years ago – Nacard is a former co-head of Asian equities at Macquarie. The duo became friends, then their families became close. In addition to their day jobs, both were heavily involved in philanthropic activities. Nacard was on Macquarie's Foundation Global Board, while Parkin and his family had raised money to build two child and maternity health centres in Cambodia.
Former Perpetual Investments rising star Nathan Parkin is making an ambitious return to local funds management, seeking to raise $3 billion for a new ethical investment fund. Street Talk understands Parkin, who left Perpetual abruptly in late 2016, has teamed up with former Macquarie Securities equities desk head Matthew Nacard to establish new boutique Ethical Partners Funds Management. Sources said the pair had set up office in Sydney's Pitt Street - not far from Parkin's old hunting ground at Angel Place - and were in the process of obtaining an Australian Financial Services Licence so they could start managing money.