Neuberger Berman Europe Limited
Stewardship and Responsible Investment
The UK Stewardship Code (“the Code”)
Neuberger Berman is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”). Pursuant to the rules of the FCA ‘s Conduct of Business Sourcebook, Neuberger Berman is required to disclose its commitment to the Code and to set out how Neuberger Berman complies with the various principles set out therein. The Code sets out a number of areas of good practice on engagement with investee companies to which Neuberger Berman, as an institutional investor, aspires.
Our Approach to the Code
At Neuberger Berman we take our responsibility to comply with the Code very seriously. We believe that good stewardship and responsible investment will provide our clients with better long term investment performance, thus enhancing the value that accrues to the ultimate beneficiary.
The Seven Principles of the Code
The purpose of this statement on “Stewardship and Responsible Investment” is to describe how Neuberger Berman applies each of the seven principles of the Code and to supplement this information with further details on stewardship, governance and responsible investing.
Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
Neuberger Berman acts as a fiduciary manager, and ensures at all times that it acts in the best interest of its clients. At the same time, Neuberger Berman ensures that it safeguards the assets that it manages on behalf of its clients.
Stewardship activities are undertaken with respect to all asset classes. On fixed income assets, engagement is undertaken as part of the stewardship activities and this is integrated into the determination of corporate debt and other related fixed income asset class issues.
Fund managers and analysts regularly meet with the management of companies to monitor their activities. Such active engagement allows for discussions and insight into corporate strategy, business planning, future developments, and capital matters. The meetings and engagement are designed to ensure proper governance and in so doing to protect and enhance shareholder value.
With publically traded companies, the role of governance and stewardship is carried out by Neuberger Berman to provide general oversight and to help ensure that management is focused and working on behalf of shareholders. Within the context of socially responsible investing (“SRI”) at Neuberger Berman, we look at various issues. These include how boards provide oversight for sustainability initiatives and evaluate their impact on the bottom line; how companies incentivise and compensate management based on those factors; and how companies disclose economic, social and corporate governance (“ESG”) performance metrics to investors and the public. As part of the process at Neuberger Berman, fundamental portfolio managers that consider ESG factors engage with and potentially influence, management teams and offer insight as they evaluate sustainability issues and their impact on shareholders.
More specifically the global Neuberger Berman SRI Core Equity team incorporates “leadership” criteria. It is enthused to see that investors are interested in sustainability strategies as awareness has grown that ESG factors can be relevant to a company’s business success.
Neuberger Berman believes that “responsibility is the hallmark of quality” and, as such, focusing on environmental issues, employment issues, employment practices, diversity initiatives, community relations, supply chain and product integrity can be an important way to gain clarity on the nature of a given management team and corporate culture.
Information relating to the above and to Neuberger Berman’s related stewardship responsibility is kept up to date and can be found at www.nb.com/sri-uk.
Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
Neuberger Berman is ultimately owned by Neuberger Berman Group LLC, which is a private, independent, employee-controlled investment manager. Whilst Neuberger Berman manages a complete range of different asset classes, investment management is its only business.
Neuberger Berman has a conflicts of interest policy that covers Neuberger Berman and its subsidiary companies.
In the normal course of business, as in any large financial institution, situations resulting in potential or actual conflicts of interest may arise. Neuberger Berman is committed to managing these conflicts of interest to prevent abuse and protect clients, employees and counterparties.
Neuberger Berman will take all necessary steps to identify, manage, record and, where relevant, disclose actual or potential conflicts of interest between itself and its clients, and between one client and another as applicable.
Neuberger Berman has a comprehensive Conflicts of Interest Policy that takes into account any conflicts between the interests of other companies within the wider Neuberger Berman Group of companies (and persons connected thereto) and the duty that Neuberger Berman owes to its clients. In addition, Neuberger Berman applies its Conflicts of Interest Policy to all relevant outsourcing and delegation arrangements entered into and in respective services that Neuberger Berman may provide or receive from the wider Neuberger Berman group.
Integrity, fairness, impartiality and primacy of clients’ interests occupy a leading place in our ethical rules and values. Neuberger Berman has established organisational and administrative arrangements and internal controls that are designed to manage potential conflicts and to prevent material risk of damage to the interests of clients.
The Conflicts of Interest Policy identifies, by reference to the specific services and activities carried out by (or on behalf of) Neuberger Berman, circumstances that constitute or may give rise to a conflict of interest that may entail a material risk of damage to the interests of one or more Clients and/or to Neuberger Berman itself, and outlines procedures to be followed and measures to be adopted in order to manage such conflicts.
All employees of Neuberger Berman are responsible for acting in the clients’ best interests and are required to report any actual or potential conflicts of interest to both their line manager as well as to the compliance team. Training and guidance is provided to employees to ensure that all employees understand their responsibilities. When an employee identifies an actual or potential conflict, then the conflict is properly recorded on a “Conflict of Interest Capture Form” which is processed by the compliance team.
All conflicts that are identified are recorded in the Conflicts Register and any relevant mitigating action will be considered. The Chief Compliance Officer will provide a written report to the Board of Neuberger Berman, at least annually, detailing the activities undertaken by or on behalf of Neuberger Berman in which a conflict of interest entailing a material risk of damage to the interests of one or more of the funds managed by Neuberger Berman or to the interests of the investors, has arisen or may arise. In addition, on a quarterly basis the Conflicts of Interest Committee (referred to below) receives and considers a formal report produced by the Chief Compliance Officer on any actual or potential conflicts of interest that have been identified. The Conflicts of Interest Committee will escalate any matter that it considers should be included in a report to the Board of Neuberger Berman.
In addition to maintaining conflicts registers to record actual or potential conflicts, Neuberger Berman has a Conflicts of Interests Committee comprised of senior management. The Conflicts of Interest Committee meets on a frequent basis and reports directly to the Board of Neuberger Berman. This is to ensure that there is a robust policy on managing conflicts of interest in relation to all matters, including stewardship.
A copy of our Conflicts of Interest Policy is available upon request from the Neuberger Berman Chief Compliance Officer, The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ.
Institutional investors should monitor their investee companies.
Neuberger Berman is a research driven investment house, and monitoring companies is a fundamental part of its investment process. Neuberger Berman has a centralised in-house research group with over 40 analysts, dedicated to researching companies in order to come up with the best investment opportunities. As well as conducting extensive desk research, the Neuberger Berman analysts and portfolio managers regularly meet with company management. Neuberger Berman considers each company’s corporate governance practices as part of this fundamental research process. Further information on this monitoring is set out below:
- Investment and Research – Neuberger Berman portfolio managers incorporate many ESG factors such as environmental and product liabilities, legal risk and corporate governance into their investment processes, which are also considered and analysed by the Neuberger Berman centralised research team. The investment professionals have access to an array of ESG-related analytical resources, providing another lens through which to view the fundamental prospects of investment candidates.
- Leadership in ESG Investing - Neuberger Berman has for many years been an active participant in ESG integration and first began applying “avoidance screens” in 1942, and launched a socially responsive investment team in 1989. Neuberger Berman continues to ensure prominence in this space. The SRI group integrates ESG factors to identify attractively valued, high-quality businesses with long-term growth prospects and the Emerging Markets Debt team considers and analyses, both at a country and corporate level, ESG factors in the investment process.
- Engagement – Neuberger Berman actively engages with its portfolio companies through direct meetings with company management and through the proxy voting process. Neuberger Berman hosts on-site meetings with top management of current and prospective holdings, engaging company officials on a wide range of topics related to their business. Proxy voting is also a crucial aspect of Neuberger Berman engagement and further information on this is set out in Principle 6 below.
- Price Sensitive information - There are times when Neuberger Berman will be in receipt of non-public price sensitive information. Staff are provided with full and proper training to ensure that they are aware of circumstances where they might be in receipt of such information. Where Neuberger Berman is in receipt of such information and has become an insider, the company will be added to the global Neuberger Berman restricted list and during that time fund managers are prohibited from buying or selling shares in that company. All employees of Neuberger Berman will also be prevented from trading in any company on the restricted list, either for the company or for their own personal account.
Institutional investors should establish clear guidelines on when and how they will escalate their stewardship activities.
Neuberger Berman operates with a diverse client base and in a variety of differing markets. As such, we believe that the escalation of stewardship activity has to be decided on a case by case basis. In every instance, local legislation, regulation and market practice will be factors considered by Neuberger Berman before further action or escalation is determined.
Where issues arise on stewardship activities, appropriate team members will actively engage with portfolio companies through direct meetings with company management and through the proxy voting process. Neuberger Berman will escalate issues within portfolio companies as necessary and host on site meetings with top management of both current and prospective holdings, engaging company officials and attempting to seek a solution through constructive dialogue. In these meetings, company management will be strongly challenged on their assumptions in the event that any actions or processes are deemed to be questionable.
There are a variety of issues relating to governance which Neuberger Berman will take into consideration when reviewing portfolio companies and upon which intervention has and will take place as necessary and appropriate. This includes matters relating to specific board appointments, board composition, executive and non-executive positions, remuneration practices, corporate transactions (including mergers and acquisitions) and ESG issues.
Neuberger Berman will undertake the escalation of stewardship and engagement issues in private and confidential meetings with the portfolio companies. We believe that open and honest dialogue can lead to proper and effective negotiations and decisions, and that poor governance is often coupled with poor performance. If Neuberger Berman remain unhappy with the company’s processes or strategy then we will, depending on the circumstances, either consider selling the stock or take a more “activist” approach.
Institutional investors should be willing to act collectively with other investors where appropriate.
Neuberger Berman is prepared and willing to act collectively with other investors, where it is considered proper, appropriate and in the best interests of its clients.
Collective engagement is appropriate at certain times and, in this respect, consideration is given to any relevant market factors as well as a determination of the regulatory environment. Neuberger Berman seeks to take into consideration factors that might influence a party’s ability and effectiveness to act collectively and is mindful that different investors may have differing priorities.
Neuberger Berman also works collaboratively with other bodies and organisations, such as the UN backed Principles for Responsible Investment and the Investment Association, which can co-ordinate and support collective views in a more neutral and independent environment.
Institutional investors should have a clear policy on voting and disclosure of voting activity.
Neuberger Berman understands that proxy voting is an integral aspect of investment management and a key function of stewardship and responsible investment.
Neuberger Berman has adopted and implemented written Proxy Voting Policies and Procedures (“the Proxy Voting Policy”) that are designed to ensure that Neuberger Berman votes proxies prudently and in the best interests of all clients with whom Neuberger Berman has voting authority. In addition Neuberger Berman has a Proxy Committee, which is responsible for developing, authorizing, implementing and updating the Proxy Voting Policy, overseeing the proxy voting process, and engaging and overseeing any independent third party vendors as voting delegate to review, monitor and/or vote proxies. In order to ensure that the Proxy Voting Policy is properly applied in a timely and consistent manner, Neuberger Berman utilizes a third party, “Glass Lewis”, to vote proxies for equity securities in accordance with Neuberger Berman’s voting guidelines.
Neuberger Berman appreciates that different clients have different needs and requirements. As a result Neuberger Berman has also adopted special guidelines for “socially responsive clients”. Whilst these guidelines adopt the voting recommendations of Glass Lewis, Neuberger Berman will in certain circumstances (as set out in the Proxy Voting Policy), vote proxies in a manner that is inconsistent with the Glass Lewis recommendations where this is deemed to be in the best interests of clients, and in certain specific client circumstances. Neuberger Berman retains final authority and fiduciary responsibility for all its proxy voting and believes that the process it has adopted is effective to address material conflicts of interest that may arise between Neuberger Berman and a client as to how proxies are voted.
It is the policy of Neuberger Berman to vote all shares under which it has voting control. However, it should be noted that there may be circumstances where Neuberger Berman believe that voting would not be in the clients’ best interests, such as in countries with share blocking or meetings in which voting would entail additional costs. In such circumstances Neuberger Berman will weigh the cost and benefits of proxy voting proposals relating to foreign securities and make an informed decision with respect to whether voting a given proxy proposal is prudent and in the best interests of the client.
As a matter of policy Neuberger Berman will only disclose to its clients and other authorised persons, how Neuberger Berman or its delegate vote a client’s proxy, except as otherwise required by law or with the consent of the client and approved by Neuberger Berman. Neuberger Berman does not believe that it is generally in the clients’ best interest to make its voting decisions public in advance of any vote or to inform the company of the voting decision that it is proposing to make. Neuberger Berman will maintain records, statements and other information relating to the implementation of proxy voting policies and procedures and where clients would like to receive voting reports on a periodic basis, then Neuberger Berman will provide such periodic reports as requested. Neuberger Berman does not publicly disclose all its voting information as it believes that such disclosure is not always in the best interests of its clients, who in a number of occasions wish their voting decisions to remain confidential. However, where Neuberger Berman believe it to proper and appropriate to publically disclose such information, then this information can be found at https://viewpoint.glasslewis.net/webdisclosure/search.aspx?glpcustuserid=neu126
Institutional investors should report periodically on their stewardship and voting activities.
Clients may obtain, upon request, various aspects of voting activities carried out by Neuberger Berman.
With regard to Principles for Responsible Investment (“PRI”), Neuberger Berman has an ESG Advisory Committee which is charged with overseeing our PRI efforts. The committee includes senior level representation from portfolio management, legal and compliance, global equity and fixed income research, the Proxy Voting Committee, global client leadership, corporate social responsibility, the SRI group and the Emerging Markets Debt team.
As part of our commitment as a signatory to the UN backed PRI, Neuberger Berman reports to the ESG Advisory Committee about ESG activities on a comprehensive basis each year.
Neuberger Berman is firmly committed to strengthening and refining its ESG approach. This includes enhancing the dialogue with industry peers, augmenting our ESG-related reporting and research processes, and documenting existing activities. At the core, Neuberger Berman believes that the PRI are consistent with our heritage as a fundamentals and research-focused investment firm.
Neuberger Berman engages Glass Lewis to assist in providing voting advisory services as well as acting as voting agent. As a result Neuberger Berman does not itself obtain an independent opinion of the voting process as part of the AAF 01/06 assurance reporting. However, Neuberger Berman does receive from Glass Lewis on an annual basis the Glass Lewis independent Service Organization Control (SOC1) Report in respect of their proxy research and proxy voting service and this report is reviewed by Neuberger Berman to ensure that proper systems and controls are in place and that transactions are being properly and effectively processed. In addition to this, the Neuberger Berman independent audit team will carry out periodic audits of the Neuberger Berman voting and governance processes.
Neuberger Berman publically discloses its principles, approach and commitment to PRI on its website at www.nb.com/pri-uk
For further information on the stewardship and responsible investment activities carried out at Neuberger Berman, please contact:
Neuberger Berman Europe Limited
The Zig Zag Building,
70 Victoria Street,