Download the Report A Letter of Introduction From The Portfolio Managers Our 2021 report combines our thinking across many ESG topics alongside articles on low carbon investing and how looking after one’s customer is tied to ESG. We provide updates on our progress around adoption by portfolio companies of the Science-Based Target initiative (SBTi), our growing team, engagement, proxy voting where we take a different view to proxy advisory firms as well as sustainability incorporating durability, persistence and environmental balance. We, the Global Leaders portfolio managers, are long-term investors with our capital at stake alongside yours hence we aim to limit all risks, both ESG and fundamental, whilst investing behind attractive opportunities. A shareholder-only focus works in theory but underlying this is a critical yet overlooked assumption of harmonious balance in the company’s ecosystem due to the theoretical infinite life of a corporation. In other words, we believe that management ought to look after all stakeholders to be a shareholder focused company in the long-run. It is an interesting theory but myopic management too often get in the way. The median tenure of S&P 500® Index corporation CEOs in 2020 was only 4.4 years; shortcuts creep in. For these managers it can be all too tempting to take advantage of one or more of the constituents (customer, employee, supplier, community, environment, government etc.) to get those stock options to vest quickly rather than think beyond their tenure. It is our responsibility as fractional business owners that guides us to investing in companies that benefit all stakeholders—the virtuous circle of capitalism. We believe that our vision of “stakeholder” capitalism is just common sense. A healthy ecosystem should create value for all participants in the long run or else it won’t survive. We believe that ESG risk and opportunity are tied at the hip to business risk and opportunity. As long-term investors we must think holistically. Our thinking on every company always starts with the customer—the most important constituent in any ecosystem for without them the whole system is irrelevant. The best businesses we analyse help their customer to achieve their goals. By solving a customer’s problem—typically in a unique way— they create value for the whole ecosystem. We use our proprietary research framework to identify a Sustainable Business Advantage (SBA) driver which often underpins this great outcome. As with prior year reports we discuss our SBA driver framework in detail later. All our companies undergo our proprietary Sustainable Opportunity research looking for SBA drivers and an ESG Risk Assessment. We typically detail the current status of SBTI verified targets and where lacking we have engaged and encouraged our companies to adopt targets and to get them verified. We are seeing progress towards published targets across the portfolio, including those that are SBTi backed. We are a naturally carbon-light strategy, with minimal scope 1 and 2 carbon emissions. We believe that climate change is one of the biggest issues humanity faces—yet approximately 80% of the world’s energy still comes from fossil fuel sources today. As we think about our children’s future we need to speed the pace of energy transition. Many before us have pointed out that a large portion of fossil fuel supply comes from regions with a tilt to autocratic governments—this brings other obvious ESG risks. We provide analysis on our carbon status in this report (“Science-Based Targets Adoption, A New Standard for Climate Target Measurement”). We spend a lot of time understanding what is driving management and don’t partner up lightly. Hence when it comes to proxy voting we tend to back management, although not always and never without a questioning dialogue. We discuss our thinking on proxy voting analysis later in this report. One voice we are increasingly pondering is to abstain. We find founder and family owned businesses to be some of the most aligned with our investment horizon and willing to make short-term sacrifices for long-term gain—the opposite of the average gun-for-hire CEO. Last year we noted our votes against ISS recommendations on multigenerational family owned business at Schindler. You cannot put a price on five generations of family pride, longevity and planning to the horizon beyond the next generation. We give another example of 149 years of family involvement at Atlas Copco in this report. During 2021 we worked with the Forum Nachhaltige Geldanlagen (FNG) in Germany to benchmark our quality and sustainability standards. The FNG’s goal is to improve the transparency of sustainable finance products and the standards are audited by the University of Hamburg. We were awarded the second highest rating of the FNG-Label for the Global Leaders Sustainable (GLS) UCITS Fund. The FNG-Label standards are well beyond the self-declared Sustainable Finance Disclosure Regulation (SFDR) categorisation and provide an independent external benchmark verifying our SFDR Article 8 status. The label was awarded specifically to the GLS UCITS Fund (as opposed to the broader Global Leaders strategy); despite marginal differences in portfolio holdings (as a result of adding negative screens), the two portfolios had 97% overlap in holdings as of Dec. 31, 2021, and as such we think about them as one. Our motto “Thoughtful Investing” is never more important than when incorporating ESG and Brown Advisory’s commitment to the Net Zero Asset Managers (NZAM) initiative in 2021 is another important step in considering our responsibilities to our investors. We are fundamental, bottom-up, long-term investors that are meaningfully invested in the strategy. We aim to deliver attractive investment returns starting at the top with the customer value created by our investee companies resulting in the win-win of a harmonious sustainable ecosystem. ESG and fundamental analysis may be distinguishable to many but to us they are inseparable. Thanks for reading and we hope that you enjoy our report. Sincerely, Mick Dillon, CFA Portfolio Manager Bertie Thomson, CFA Portfolio Manager *Brown Advisory entities included are: Brown Advisory LLC, Brown Investment Advisory & Trust Company, Brown Advisory Ltd. and Brown Advisory Trust Company of Delaware, LLC.