Go forth and diversify 
Board diversity has been a hot topic of debate in recent months, especially the need to increase the number of women directors.

This stems from a series of related reviews and consultations. Back in August 2010, Lord Davies was asked by the Business Secretary Vince Cable and Home Secretary Theresa May to review the current situation and assess why there are not more female members of UK company boards.

Published in February, Lord Davies' subsequent review recommended that FTSE 100 companies should be aiming for a minimum of 25% female board representation by 2015 and that the whole of the FTSE 350 should be setting their own challenging targets.

This recommendation was driven in part by a growing body of supportive research findings. A 2010 study by McKinsey for example found that across all industry sectors, companies with the most female board members significantly and consistently outperformed those with no female representation - by 41% in terms of return on equity and by 56% in terms of operating results.*

At Jupiter, we recognise that greater gender diversity at director level can lead to more effective boards. It can broaden perspective among directors, result in more balanced judgment and opinion in decision making, and reduce any tendency towards 'group think'. Recent comments made by the Prime Minister at a meeting at 10 Downing Street reflect our thoughts: "As we look to grow our economy and maintain a competitive edge. it is important we make the most of the talent and skills out there. I want to see more companies setting out their plans for women on boards and driving this forward." This meeting, attended by Emma Howard Boyd, Jupiter's Head of Sustainable Investment and Governance, coincided with a report on progress six months on from Lord Davies' report. The report found that that 61 of the FTSE 100 companies had responded to the Lord Davies review, acknowledging that gender diversity is an issue, with 33 setting themselves targets for the percentage of women they aim to have on their boards. The report also showed that only 21 women had been appointed to board positions out of a possible 93 - 22.5%, some way short of the 33% recommended in the Davies report. **

We have actively expressed our support for various recommendations made by the Davies Report. However, we feel that board appointments should be made on merit and not to fulfill quotas. Nonetheless, we encourage voluntary initiatives such as the 30% Club which supports the introduction of an aspirational target to achieve greater female representation on company boards.

* McKinsey & Company: Women Matter 2010
** Downing Street press release: PM welcomes progress on women on boards, 12th October 2011

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The long arm of the law
July saw the much debated UK Bribery Act come into force, with far-reaching consequences for both companies and their investors. The Act applies not only to UK citizens, residents and companies established under UK law, but also to non-UK companies that do business in the UK.

The law also introduces a specific corporate offence of failing to prevent bribery. In issuing guidance on the new law, the Ministry of Justice sets out six principles for commercial organisations wishing to take preventative action. The first is that procedures "are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation's activities. They are also clear, practical, accessible, effectively implemented and enforced."*

Discussion on the nature of related internal controls has long featured in our engagements with companies, and as such Jupiter welcomes efforts to make clear the steps taken at companies we invest in.

The Bribery Act also came to life in a period of heightened focus on transparency. As we reported earlier in the year, the EU is considering a similar measure to the provision within the Dodd-Frank Act that requires US-listed resources companies to report all payments made to governments anywhere in the world to the Securities and Exchange Commission.

We believe this has the potential to benefit investors. As such, we are one of 21 institutional investors who recently wrote to Michel Barnier, European Commissioner for Internal Market and Services, to express our support for EU legislation regarding enhanced transparency in the resources industries. This letter stated specifically that as investors, we believe that improved disclosure will promote stability and transparency in the environments within which these companies operate and therefore enhance the prospects for investment returns.

* Ministry of Justice: The UK Bribery Act: Guidance http://www.justice.gov.uk/guidance/docs/bribery-act-2010-guidance.pdf
*Financial Times, March 3rd 2011. EU closer to US-style financial reform

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Safety from the top down
One of the key lessons stemming from the Gulf of Mexico disaster has been the importance of engendering a culture of safety as well as adequate processes of risk control.

Given our belief that responsibility for this begins with the board, we have welcomed the increasing trend for resources sector companies to highlight the role of various board members and committees in meeting the challenges presented by high-risk operating environments. Our engagements with companies on the issue have therefore included discussions with chairmen and non-executive directors, in addition to executives and those in specialist management roles.

Our discussions have reiterated the importance of direct site-visits by those individuals with responsibility for overseeing how effective approaches to operational risks are. This is an active approach that we also see great value in for ourselves, so as to remain fully informed on emerging risk issues. Growing levels of shale gas extraction in North America, for example, has remained an environmentally contentious issue. Jupiter will shortly take part in site visits to better understand the risks and opportunities that these developments present to investors. 

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The future of the car - according to BMW
At the end of September, a team of fund managers and sustainability experts from Jupiter gained a glimpse of the future of the automobile during a visit to BMW's headquarters in Munich.

Arriving in the country where the modern gasoline-powered car was invented in the late 19th century, the Jupiter team participated in a series of meetings with senior management from the automobile group. The company's strong focus on sustainability was evident in all the discussions which took place.

BMW has radically transformed itself over the past 15 years. Following the disposal of the UK car manufacturer Rover in 2000, the company faced an uphill struggle to grow to a size where it could compete effectively with Daimler (Mercedes-Benz) and Volkswagen-owned Audi. Since then its sales have grown considerably, rising from 905,657 cars in 2001 to?1,461,166 cars in 2010.*

It has also demonstrated great progress in terms of commitment to sustainable products and operations, embedding sustainability with its corporate strategy - Strategy Number One. For the 7th consecutive year, BMW has been listed as the world's most sustainable automobile company by the Dow Jones Sustainability Index. BMW's European group fleet carbon dioxide emissions (the average across all the cars it sells) have been reduced by more than 30% over the period 1997-2010. In 2010, the cars that BMW sells in Germany are on average more carbon efficient, yet more powerful, than those sold by competitors Mercedes-Benz and Audi.**

Yet the company is not resting on its laurels and is looking to shape the future of the car, with plans to radically change both the cars we drive and the way we own them.

From 2013, the company will introduce the BMW i3 electric vehicle and the i8 petrol-electric hybrid sports car into its range. These will be constructed largely from carbon-fibre-reinforced-plastic (CFRP), as used in high-end tennis racquets and golf clubs. When it comes to ownership, innovative leasing and car-sharing agreements are being conceived that may displace the current buy and own model.

For its conventional models, the company continues to develop and apply its EfficientDynamics range of fuel-saving technologies to its entire range, in contrast to most of its rivals who have instead confined fuel-saving technologies to specific green sub-brands.

The company is also breaking new ground in other areas. The production process for the forthcoming i-series cars will use 70% less water and 50% less energy than current BMW methods. All the energy required will come from renewable sources. The company considers climate change when deciding factory locations. It also measures supply chain risks such as those posed by natural disasters and is constantly seeking to reduce the amount of resources it uses.

BMW is likely to remain a brand that appeals to car enthusiasts, but the company is demonstrating that it can be not only possible, but commercially beneficial, for car companies to give environmental issues prominence in their corporate strategy.

* BMW Annual Report 2010
** BMW Group Investor Presentation, September 2011

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