As we have worked with clients on their ESG portfolios over the years, we’ve discovered that there are a few specific companies that many of our clients want excluded by name from their portfolios. (I sometimes refer to these as "companies that people love to hate.") The names of these companies may not surprise you: ExxonMobil, Walmart, and Monsanto. We have other clients who think these companies are fine and have their own lists of objectionable companies. You certainly may have your own nominees for such a list.
But what should you do when there is a corporate action involving one of the companies you currently exclude from your portfolio?
In 2016, Bayer AG (BAYN) announced it would acquire Monsanto (MON) in an all-cash transaction. The merger requires a significant number of regulatory reviews and approvals, which have been ongoing since the announcement. In April of this year, the US Department of Justice approved the merger following reports indicating that Bayer has agreed to sell some assets to reduce antitrust concerns. The European Union has also blessed the merger, so it is getting closer to reality.
What does this mean for you if you specifically excluded Monsanto from your portfolio? At Aperio, if your portfolio includes issue-based rules related to GMOs (genetically modified organisms), Bayer was already excluded from your portfolio, and while the transaction is interesting news, it doesn’t affect you. If, however, you excluded Monsanto by name, whether because of its involvement in GMOs or based on beliefs about “shady” business practices, Bayer could be in your portfolio and could be problematic.
Here are some questions you might want to consider:
- Was my motivation for excluding Monsanto based on its GMO involvement, and should I implement that exclusion more consistently by establishing an issue-based criteria related to GMOs?
- Was my motivation based on other factors about how Monsanto conducted its business, and can I determine whether those practices will carry forward into Bayer as the basis for excluding (possibly selling or gifting) Bayer from my portfolio?
This merger, assuming it is completed, offers an opportunity to consider some of the structural approaches to implementing your values in your portfolio based on a very concrete example. As with any implementation of values criteria, there is no one right answer for all clients, just the answer that is most appropriate for you.
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