One of our core investment beliefs at Fisher Funds is to only invest in companies that act responsibly. What does this mean? This means that we will not invest in companies that cause unconscionable harm. This means that if companies engage in behaviour that compromises acceptable environmental, social or governance standards we will not maintain an investment in the company.
We have seen this policy come into play in our investment process this month with our decision to sell all shares in Australian listed miner BHP Group Ltd (“BHP”). As a significant producer of thermal coal, we have deemed BHP to be in contravention of our Responsible Investing Policy.
As is so often the case when principles collide with the ‘real world’, the judgement call on BHP’s breach of this policy is nuanced.
First, some history. As two of the highest quality diversified mining companies on a global basis, Fisher Funds has been invested at various times in both BHP and its Australian stablemate, Rio Tinto Ltd (“Rio Tinto”) over the past few years. Both companies have high quality assets. Both companies have been soundly managed in recent years. Both companies have been disciplined and sensible in managing the cash windfall from the recent commodity boom. Their shareholders have been rewarded.
Going back to 2016, when we built our positions in BHP and Rio Tinto, it looked to us as if they were quietly, but actively on the road to exiting their exposure to thermal coal. For this reason we felt both companies were permissible holdings under our Responsible Investing Policy. BHP had exited a number of thermal coal assets when it de-merged the South32 operation the prior year, leaving it with two remaining assets, in Australia and Colombia. Rio Tinto had been steadily reducing its exposure and in fact in 2018 sold its last thermal coal mine.
We understand that the practicalities of exiting assets can be complex for companies. It takes time to sell a coal mine! However, a few years on from initiating the investment in the two firms, Rio Tinto has followed through and completely exited thermal coal production. BHP has not done so. In fact BHP does not currently seem to be trying to dispose of the remaining Colombian and Australian operations and has recently publicly stated that the company is happy with its remaining thermal coal exposure. This was a big red flag for us.
So, notwithstanding that we still regard BHP’s portfolio of businesses and management team highly, we have drawn a line in the sand. Until the remaining thermal coal assets are disposed of, we will no longer be investing in BHP’s shares.