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MFS® Stewardship Report
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Second Quarter 2020
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Table of Contents
1 Sustainable investing at MFS
4 ESG integration update
5 Stewardship at MFS
6 Proxy voting activity
7 Representative
engagement activity
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Sustainable Investing at MFS
MFS has been actively managing our clients’ money since we created the first open-end mutual
fund in 1924. Deep fundamental research and a long-term perspective are the foundation of
our investment approach. We seek to achieve our clients’ long-term economic objectives by
responsibly allocating their capital.
As an active manager, we have always sought to identify investments that can add sustainable,
long-term value for our clients. In 2009, we formed the MFS Responsible Investing Committee
and issued the MFS Policy on Responsible Investing and Engagement to ensure the systematic
integration of financially material environmental, social and governance (ESG) topics into our
investment process.
Over the past decade, we have made significant progress toward achieving our ESG integration
goals. We have added resources dedicated to integrating sustainable investing into every aspect of
our investment process and developed a comprehensive sustainable investing framework.
This includes enhancing our efforts on effective stewardship, which we define as our fiduciary duty
to allocate capital responsibly, engage productively with companies and other industry participants
and exercise our voting responsibility thoughtfully and deliberately.
This report provides a quarterly update of our ESG integration and stewardship activity that we
hope offers our clients insights into our sustainable investing approach and how we allocate their
capital responsibly.
For a more comprehensive overview of sustainable investing at MFS, please visit mfs.com/
sustainability, where you will find our Sustainable Investing Annual Report, our responsible
investing and proxy voting policies, which govern our stewardship activities, and a wide variety of
sustainable investing research and thought leadership.
We recognize that sustainable investing is an important topic for our clients, and we welcome any
opportunity to discuss it further with you.
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At MFS, it is our firm belief that a successful approach to sustainable investing requires the
participation of our entire firm. Sustainable investing describes our fundamental investment
process; it is not a separate discipline with different inputs or outcomes. As such, our sustainable
investment process requires that all of our investment professionals are actively engaged in, and
responsible for, its success.
In order to facilitate the adoption, implementation and enhancement of sustainable investing
practices across the firm, we employ a number of individuals positioned to provide strategic
leadership on sustainable investing and support effective integration of sustainability topics across
teams and disciplines.
Investments
Barnaby Wiener, one of our most seasoned portfolio managers, serves as Head of Sustainability
and Stewardship. A leader and culture carrier who has long been a champion of sustainability,
Barnaby works closely with our three ESG-dedicated research analysts to engage with investment
leadership, portfolio managers and analysts to ensure that all of our investors truly understand and
have ownership of sustainability in their research and portfolio management duties. He also plays a
strategic role with regard to issuer engagement on sustainability topics.
Our investment team includes two equity analysts and one fixed income analyst dedicated solely to
ESG research who have done much to advance our investment team’s thinking on ESG topics. Our
ESG analysts fulfill a critical role in facilitating our sustainable investing efforts. However, they are
not intended to be the source of all ESG research. Their role is to support and enhance the ongoing
research into ESG topics performed by our portfolio managers and analysts.
Pooja Daftary
Investment Team
Mahesh Jayakumar Barnaby Wiener
Lindsey Apple
Proxy Voting
Herald Nikollara Margaret Therrien
Rob Wilson
Michael Cantara
Client Facing
Mason Gregory Dan Popielarski Vishal Hindocha
DEDICATED SUSTAINABLE INVESTING PROFESSIONALS
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Proxy voting
The administration of the MFS Proxy Policies is overseen by the MFS Proxy Voting Committee. Our
team of three dedicated proxy analysts manages day-to-day proxy voting and engagement activity.
The proxy voting team employs a collaborative approach in its decision-making, incorporating
information and perspectives from our global team of investment professionals, from public
disclosures and engagement discussions with our portfolio companies, and from a variety of third-
party research tools. This process facilitates well-rounded viewpoints on key issues, which we
believe leads to well-informed voting decisions that are in the best long-term economic interests of
our clients.
Client engagement and thought leadership
We have personnel dedicated to developing thought leadership and engaging with our clients and
the investment industry on ESG issues. These individuals play an important role given the high level
of interest from industry participants in understanding how asset managers such as MFS approach
sustainable investing.
Michael Cantara, who leads our global client group, plays an important role in the advancement of
sustainable investing within the firm and how we communicate our approach externally. Mike is co-
chair of the MFS Sustainability Group and the MFS Responsible Investing Committee.
The MFS Investment Solutions Group, which leads the development of thought leadership, client
research and special projects for MFS, includes three individuals fully dedicated to sustainable
investing. This team develops ESG thought leadership and market research as well as interacting
with our clients in the capacity of investment strategists.
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ESG Integration Update Second Quarter 2020
Sustainability strategy
Our approach to sustainable investing remained consistent during the second quarter of 2020.
There were no substantial changes to our overarching ESG integration, proxy voting or engagement
processes; however, MFS continued to make internal and external ESG research and data more
available. During the quarter, our entire global investment team was authorized to receive access to a
new environmental data set, which will aid in our ongoing analysis of climate change and related risks.
Research activities
During the quarter, our investment team continued to produce a substantial amount of company-
specific, sectoral and thematic ESG research, which was shared across our entire global research
platform.
Company-specific: One of our North American telecom analysts upgraded a company to a buy
rating based partially on its strong customer service and ability to reach both minority groups and
lower-income consumers. Other research performed by the team included analyses related to human
rights abuses at a UK business services company and supply chain risk at a US apparel/footwear
manufacturer, among many other examples. In addition to supporting the broader team’s work,
our ESG research analysts continued to contribute to our security-level research, offering detailed
perspectives throughout the quarter regarding companies in the blood plasma, European medical
device, and global mining industries.
Sectoral: Our global consumer cyclicals sector team developed a presentation and hosted a discussion
on income inequality and risks related to low wage labor in the sector. This meeting resulted in several
engagements with company management teams regarding the sustainability of low wages and the
corporate cultural signals provided by companies that offer higher wages and better benefits. Similarly,
our financials sector team held a meeting to discuss how various companies are positioned to respond
to rising societal expectations around fair wages.
Thematic: Our investment team spent a considerable amount of time during the quarter evaluating
emerging climate risks and opportunities associated with coal gasification and hydrogen. We have
engaged with the management teams of multiple companies in the industrial gas industry on these
topics. Our work in this area has influenced how many of our portfolio managers assess the relative
value of industrial gas companies.
During the quarter, our entire global investment team was authorized to receive access to a new environmental data set, which will aid in our ongoing analysis of climate change and related risks.
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Stewardship at MFS
Consistent with our ESG integration practices, we believe open communication with companies
and issuers is an important aspect of our ownership responsibilities. Our goal when engaging is to
exchange views on ESG topics that, in our view, represent material financial risks or opportunities
for companies or issuers and to effect positive change on such issues. We believe that large, long-
term-oriented asset managers who engage companies and issuers on ESG topics can positively
influence governance and business practices by encouraging executive teams to view these issues
as relevant to an increasingly broad investor base and worthy of further consideration.
We typically engage with companies and issuers on ESG issues in four ways:
Informal investment team–led engagement — Our investment team engages with
companies on a consistent basis, often sharing ideas and asking ESG-related questions of
management teams during meetings in our offices. We view these meetings as “informal”
engagement opportunities, as the discussion is not always focused on driving corporate
change, but rather it is often about better understanding the risk/return profile of the
company’s securities.
Formal investment team–led engagement — Each year, our investment team requests
ESG-focused meetings or writes formal letters with the aim of engaging with various
companies’ boards on ESG topics.
Collective and other forms of engagement — We often engage with sponsors of
shareholder initiatives or proposals, which helps inform our views on important proxy voting
issues, and we participate in various industry working groups and organizations that seek
to develop thought leadership on emerging proxy voting issues. MFS may send letters to
regulatory agencies in order to encourage corporate governance reform when we feel it is
warranted.
Formal proxy voting–led engagement — Representatives of our Proxy Voting Committee
engage in a dialogue with a company or other stakeholders when we believe that the
discussion will enhance our understanding of certain matters on the company’s proxy
statement
For more detailed information, or to view our Sustainable Investing Annual Report and our
responsible investing and proxy voting policies, please visit mfs.com/sustainability.
Our goal when engaging is to exchange views on ESG topics that, in our view, represent material financial risks or opportunities for companies or issuers and to effect positive change on such issues.
1.
2.
3.
4.
INFORMAL
INVESTMENT-LED
FORMAL
INVESTMENT-LEDCOLLECTIVE
FORMAL
PROXY-LED
MFS ENGAGEMENT ACTIVITIES
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*Represents percentage of total votes. At 41% of meetings during the quarter, MFS voted against management at least once.
During the second quarter, our proxy voting team continued to focus on engagement as
we entered the 2020 proxy season. In-season engagement discussions with management,
directors and other senior representatives of portfolio companies typically focus on particular
ballot items submitted for a shareholder vote and help inform our analysis of such issues.
Discussions led by our proxy team during the 2020 proxy season focused on topics such as
n Corporate culture
n Board gender diversity
n Alignment of executive pay and company performance
n Climate change
n Director qualifications
n Board independence
MARKETS
54MEETINGS
1,344PROPOSALS
16,796VOTES AGAINST MANAGEMENT
7.1%*
PROXY VOTING STATISTICS
Proxy Voting Activity
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REPRESENTATIVE ENGAGEMENT ACTIVITY
Retailers in Focus
Developed market income inequality is being driven by structural factors
(e.g., automation, outsourcing/globalization, etc.) that are unlikely to naturally reverse
based on market forces. We believe these structural factors will cause society to put
more emphasis on addressing inequality through regulation, which could reverse many
of the margin-enhancing steps companies have taken to reduce labor costs.
For example, the value of service sector jobs has diminished substantially. Few of these
jobs offer a living wage, health and retirement benefits or consistent schedules, which
has forced society to pick up the cost of the negative externalities associated with these
types of employment practices. Research suggests that layoffs substantially hinder the
job performance of remaining employees, the cost of replacing an employee is up to two
times his or her salary, and new employees can take two years to get to full productivity.
Given this, we should be willing to look through the short-term pain of margin
degradation and select companies that invest in their employees and can outperform
over the long term by avoiding these pitfalls.
These could be companies that already manage their workforce well (i.e., those that have
avoided relying too much on the labor cost reduction levers described above) or those
that have sufficient margins or sustainable pricing power to absorb increased labor
costs. Such increased employee costs are also likely to become stickier during
downturns, further impacting decreasing margins in future recessions.
The things we consider include
n extra COVID-related compensation per employee
n total COVID related costs (including extra cleaning) as percentage of revenues
n analyzing Glassdoor ratings
n employee turnover rates
n mix of contract and temporary employees
n offshoring mix
n employee turnover
With many retailers being deemed “essential” during the pandemic, our investment
team has engaged extensively with companies to discuss how they are managing
corporate culture, employees and layoffs during this crisis and beyond. This is especially
important given an increasing societal emphasis on inequality and its materiality.
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Domicile: United Kingdom
Sector: Communication services
Industry: Diversified telecommunication services
Date: June 2020
Participants: Covering industry analysts, portfolio managers,
ESG analyst
Meeting type: Conference call
Several members of our investment team had a call with
Helios Towers, an African cell tower operator, on
sustainability topics. Helios has a substantial opportunity
to benefit from ESG-related tailwinds. Helios enables
better connectivity for the local population, improved
service reliability, lowered telecom costs (savings ideally
passed through to consumers as competition intensifies)
and has reduced its fuel consumption as it consolidates
mobile network operators within fewer sites. The business
also faces significant ESG risks, most notably bribery and
corruption. Fortunately, the company has had strong
practices in this area. Management has also designed a
corporate culture that addresses these risks.
During the call, we pressed the company’s team, as we
have many times in the past, about its use of diesel to
power its cell towers. We would like it to continue to find
innovative ways to power its sites more sustainably.
The company is working to improve in this area: it has
many sites using solar and hybrid forms of energy. The
company generally tries to connect its sites to the electric
grid, but in many of the regions where the company
operates, it is not always possible. Overall, our discussion
was positive and the Helios team reinforced our view that
while there is plenty of room for improvement, the
company continues to make progress on enhancing the
sustainability of its operations.
Helios Towers PLC (HTWS LN)
Owns and operates telecommunications towers and passive infrastructure in five high-growth African markets
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Domicile: United States
Sector: Consumer discretionary
Industry: Internet and direct marketing retail
Date: May 2020
Participants: Proxy team, covering industry analyst
Meeting type: Conference call
Members of our proxy voting and investment teams
engaged with senior representatives of Amazon.com, Inc.
to discuss shareholder proposals on the ballot at the
company’s 2020 annual shareholder meeting. Our
discussion focused on issues relating to food waste
management, supply chain standards, hate speech and
human rights concerns around surveillance and facial
recognition software. Although we were satisfied with
Amazon’s current practices and disclosures in some
respects, we felt it was in shareholders’ best interest to
support several proposals advocating for additional
progress. While none of the twelve shareholder proposals
on the ballot received majority support, six of the seven
proposals supported by MFS received support from more
than 30% of shareholders, demonstrating a significant
level of shareholder interest in these issues.
Amazon.com, Inc. (AMZN US)
Global retailer and cloud computing provider
PERCENTAGE OF SHAREHOLDER PROPOSALS ON THIS BALLOT THAT MFS SUPPORTED
58%
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Domicile: United States
Sector: Information technology
Industry: Software
Date: April 2020
Participants: Proxy team, portfolio manager
Meeting type: Conference call
Members of our proxy voting and investment teams
engaged with the board chair and other senior
representatives of Ansys Inc. to discuss executive
compensation, board composition, evolving ESG efforts
and strategic priorities. Our discussion around
compensation focused on a one-off retention grant paid
to the CEO and other executives. As we review one-off
grants cautiously and look for awards that incentivize
sustainable, long-term behavior, we were eager to discuss
the design of the award and the strategic reasoning
behind it. Our discussion around board matters largely
centered on outside director service, as well as data
security as a critical focus of the board and, in particular, of
the board chair and the audit committee.
Ansys Inc. (ANSS US)
Develops and markets engineering simulation software and services worldwide
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Domicile: United States
Sector: Financials
Industry: Capital markets
Date: April 2020
Participants: Proxy team, covering industry analyst
Meeting type: Conference call
Members of our proxy voting and investment teams spoke
with senior representatives of Goldman Sachs Group,
including the chair of the compensation committee and
the lead director, ahead of the 2020 annual shareholder
meeting to discuss board composition, compensation,
sustainability and corporate culture. With regard to board
composition, we discussed the company’s approach to
director recruitment and succession planning, including
areas for growth in its director skills matrix and its focus on
building and maintaining a diverse board. In particular, we
observed a notable increase in female representation on
the board, from 15% in 2016 to 36% in 2020. Our
discussion on compensation centered on the board’s new
performance assessment framework, which serves to
align executives’ incentives with the long-term strategic
goals of the firm. The framework also provides
shareholders with additional transparency and board
accountability, which will aid in assessing the structure
and rigor of the program.
Goldman Sachs Group Inc. (GS US)
Operates as an investment banking, securities, and investment management company worldwide
WE OBSERVED A NOTABLE INCREASE IN FEMALE REPRESENTATION ON THE BOARD, FROM 15% IN 2016 TO 36% IN 2020
15%
36%
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In 1924, MFS launched the fi rst US open-end mutual fund, opening the door to the markets for millions of everyday investors. Today, as a full-service global investment manager serving fi nancial advisors, intermediaries and institutional clients, MFS still serves a single purpose: to create long-term value for clients by allocating capital responsibly. That takes our powerful investment approach combining collective expertise, thoughtful risk management and long-term discipline. Supported by our culture of shared values and collaboration, our teams of diverse thinkers actively debate ideas and assess material risks to uncover what we believe are the best investment opportunities in the market.
The views expressed in this presentation are those of the speaker and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any other MFS investment product.
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