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May 2023

2022 MFS Annual Sustainability Report

This annual report offers a comprehensive review of our approach to sustainability, material factor integration, proxy voting and engagement activities at MFS for the 2022 calendar year.

  • RESEARCH AND INVESTMENT OUTCOMES

    RESEARCH AND INVESTMENT OUTCOMES

    We have consistently and thoughtfully combined analytic, bottom-up and thematic research and systematic risk management with robust active ownership in making our investment decisions. Remaining committed to this process, we have presented an overview of our sustainability initiatives, research and stewardship activities throughout the year.

    • Our Active Ownership Approach

    • Our Sustainability Structure and Working Groups

    • Market-Wide and Systemic Risks

    • Constructivism: A Collaborative Approach to Stewardship

    • Biodiversity, Natural Capital and the Scope 3 Debate

    • Sustainability in Fixed Income

    • Proxy Voting: A Pillar of Stewardship

    Our Active Ownership Approach

    Our Active Ownership Approach

    We believe open communication with companies and issuers is an important aspect of our ownership. We also believe this approach, which we would characterize as collaborative, materiality oriented and issuer-focused, gives us an analytical advantage and can act as a source of alpha generation. It is our view that the best outcomes are most likely achieved through strong relationships and regular, mutual dialogue with our portfolio companies. 

    Our goal when engaging is to exchange views on topics that represent material risks or opportunities for companies or issuers, and to effect positive change on such issues. We believe that long-term-oriented asset managers who engage companies on material topics can positively influence a multitude of better business practices, which will ultimately accrete value for our clients. Our engagement approach is driven by collaboration among all members of our investment platform, including our stewardship team. Our engagements take place consistently, and in different forms, often involving dialogue with company management, formal letters, ESG-focused board meetings and more. The two ways engagements are conducted are: 

    • solely by members of our investment/stewardship team 
    • in collaboration with other industry participants

    We believe that collaborative engagement can generate positive impacts for industries, individual companies and a wide range of stakeholders, including shareholders. We actively participate in industry initiatives, organizations and working groups that seek to improve and provide guidance on corporate and investor best practices, integration and proxy voting issues.

    MFS is a member of or signatory to a variety of organizations and initiatives that promote and coordinate collaborative engagement on sustainability topics, including the Principles for Responsible Investment (PRI), the US Investor Stewardship Group (ISG), the Workforce Disclosure Initiative (WDI), the CDP and the CDP Science Based Targets Campaign, Climate Action 100+ (CA100+) and Ceres. For example, the firm is an active participant in six CA100+ company engagements, and we are actively encouraging our portfolio companies to enhance disclosure and adopt best practices across sustainability topics, such as by setting science-based emissions reduction targets, addressing modern slavery and forced labor and enhancing disclosure around employee management practices. We are also signatories of, and adhere to, the UK, Japan and Australia Stewardship codes.

    Our approach is centered around two aims, which in many cases overlap: 

    1. Knowledge exchange and monitoring — We seek engagement opportunities to improve our understanding of investee companies, which makes for better investment decisions. By engaging with a company to achieve specific goals, we are improving our understanding of the material risks it faces and also have the opportunity to share our own values and broader expectations. 
    2. Engagement with a focus on real-world change — When necessary, we try to challenge issuers’ behavior in relation to considerations that we feel are financially material to the company. We generally approach these engagements by setting specific objectives over the course of a specified period with the goal of influencing change in the real economy.

    Click button below for a deeper dive into our approach on engagement, escalation and divestment.

    OUR ACTIVE OWNERSHIP

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    Our Sustainability Structure and Working Groups

    Our Sustainability Structure and Working Groups

    Our firm belief is that a successful approach to sustainability cannot be accomplished by building a separate team. The groups described below provide strategic leadership and support the effective integration of sustainability across the firm, but they do not conduct all or even the majority of our research on these topics. The responsibility for sustainability-related research falls on our entire team of investment professionals around the globe, who are experts in the companies and issuers they cover. 

    The MFS Sustainability Executive Group (SEG) provides strategic leadership concerning the firm’s sustainability strategy. It includes our chair and CEO, president, CIO, CSO, CTO, general counsel and other senior leaders responsible for the integration of sustainability sustainability across the firm, but they do not conduct all or even the majority of our research on these topics. The SEG meets at least monthly to

    • develop long-term sustainability strategy, including climate change related issues 
    • advise on and coordinate the implementation of that strategy 
    • resolve any issues of prioritization and resource allocation for sustainability-related projects

    Overall, our approach to governance is designed to ensure that we remain focused and relevant on all matters of sustainability. It is also designed to reflect the three core pillars of our strategic response — investment, client and corporate.

    The Investment Sustainability Committee (ISC) 
    The ISC is accountable for defining and implementing MFS’ strategy and policies  relating to the integration of sustainability in the investment process, engagement with issuers and escalation activities, the firm’s adherence to relevant stewardship codes (including the Australian, Japan and UK Stewardship codes) and MFS’ membership in investment-led collective engagement groups.

    The Proxy Voting Committee (PVC)
    The PVC oversees the adoption and administration of the MFS Proxy Voting Policies and Procedures as well as our proxy voting activities. As part of its responsibilities, it works with the ISC to create an integrated approach to setting engagement goals and priorities.

    The Corporate Sustainability Committee (CSC) 
    The CSC is accountable for defining and implementing MFS’ sustainability client and corporate strategies and policies to ensure consistency in interactions with clients on sustainability issues (e.g., reporting, regulation and education), providing oversight of membership in client-focused collective engagement groups and coordinating corporate sustainability efforts.

    Working groups 
    We have also embedded oversight and working groups in our investment process, namely the Climate Change Working Group, Societal Impact Working Group, Governance Working Group and Sovereign Risk Working Group. The task of these groups, among other things, is to encourage and evaluate progress made with respect to the integration of sustainability into the investment process.

    ESG integration across geographic regions, client types and asset classes
    Our investment team operates on a global research and investment platform. Our investment decisions are rooted in collaboration and consensus across our globally located investment teams, and thus we manage our clients’ assets the same way regardless of type, asset class or location. That said, we have investment personnel located in major financial centers all over the world. While our process remains consistent, this broad reach gives us the ability to dig deep into local issues and provide more insightful and better tailored research, which can be leveraged by our global investors.

    Within our global research platform, we conduct high-quality, bottom-up analysis and engagement. We have over 300 investors in regions across the major markets in which we invest. This affords us the benefits of scale, allowing us to conduct thorough research into the companies we own using the diverse expertise of our platform to better help investees manage ESG risks and opportunities. Our fully integrated global research platform is the foundation of our investment process. We believe using a collaborative global structure to share and integrate information builds better insights for our clients. It allows us to look at viewpoints and opportunities from every angle and provides a global context for every decision.

    Performance evaluation and compensation of investment personnel
    MFS’ philosophy on compensation calls for us to align the compensation of investment personnel with the goal of providing shareholders with long-term value through a collaborative investment process. To achieve this, the firm believes that part of the compensation calculation should involve the degree to which personnel foster long-term investment performance and contribute to the overall investment process. The compensation of investment personnel consists of a base salary and performance bonus, with the latter typically representing most of the total cash compensation and based upon quantitative and qualitative factors. The main quantitative factor is the pretax performance of accounts managed over a fixed period to assess performance over a full market cycle and a strategy’s investment horizon. Qualitative factors, on the other hand, properly involve a person’s contribution to the investment team’s collaborative culture, including how well they consider and communicate material risks and opportunities. The qualitative portion of the team’s compensation is based on the results of an annual 360 degree peer review process, as well as an assessment of the analyst’s research processes. Sustainability is an explicit element of the qualitative assessment of performance alongside other factors such as teamwork, communication and collaboration throughout the investment process. The analysis of all material risks and opportunities is part of our investment process, and the long-term performance of each individual reflects this integration. It is our firm belief that each investor’s ability to recognize and integrate material, long term factors into their investment analysis does and will continue to materially impact this aspect of each investor’s compensation. 

    We believe that this overall approach, rooted in incentivizing long-term performance, collaboration and the consideration of all financially material factors, exemplifies the firm’s prioritization of stewardship.

    Find out more on how the teams at MFS work together to ensure that ESG integration is embedded into our investment process. 

    Find out more

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    Market-Wide and Systemic Risks

    Market-Wide and Systemic Risks

    Our investment teams focused on assessing several risks in 2022 and describe how these risks have influenced our investment and engagement processes. The consideration of these risks is additionally reflected throughout this report in the discussion of our investment, engagement and collective initiative activities.

    Climate change
    We believe that climate change will be a defining investment topic in the decade ahead, creating risks and opportunities for all businesses and society in general. As long-term investors seeking to allocate capital responsibly, MFS is carefully analyzing the impact that climate change is having on all companies held in our clients’ portfolios, as well as on those companies being considered for future investment. We invite you to read the firm’s report aligned with the Task Force for Climate-Related Financial Disclosures (TCFD) framework. 

    A “Just Transition” 
    As you will read throughout this report, we have a stated commitment to mitigating climate change in line with the goals of the Paris Agreement because we view it as a universally material risk. We want to ensure our approach to climate change does not become myopic, and so we have increased our focus on topics such as the “Just Transition” as well as biodiversity loss, and what this means for us as investors. The idea behind the just transition is that meeting the goals of the Paris Agreement through various environmental objectives also requires us to think about what impact this will have on communities of people affected by the transition. Understanding these impacts will take time, as climate transition plans and decarbonization pathways are still in the beginning stages. As we seek greater disclosure from companies in these pursuits, we are also honing in on what this means for all relevant stakeholders.

    Labor and income inequality
    Labor and income inequality has remained a key theme since the onset of the COVID-19 pandemic, which brought to light the challenges faced by low-wage and hourly workers. In response to this, MFS analysts and portfolio managers took these actions:

    • Engaged with many companies on their employee practices
    • Spoke to members of multiple trade unions to obtain labor’s viewpoint
    • Held sector team meetings to review data on employee wages, satisfaction and other factors

    Corporate culture and diversity
    Our investment team spends considerable time evaluating the impact of corporate culture on individual companies. We have seen circumstances in which culture has clearly helped a company but also situations in which culture has apparently led to negative outcomes for a company, its employees and ultimately its stock price. We firmly believe an organization’s culture is critical to its long-term success or failure. Analysis is an important part of our evaluation of corporate culture at any organization, considering factors such as employee engagement, turnover, pay, composition, diversity, gender, race and cognitive and other measures of diversity such as gender pay gap. Over the past several years, our investment team has spent a great deal of time discussing the importance and potential impact of corporate culture on sustainability. As investors, we believe enhanced transparency and disclosure is critical and can have a material impact on our investment decisions. We feel strongly that we should be willing to disclose the same data we expect our portfolio companies to disclose. Importantly, we believe this area is an ongoing journey for both MFS and our industry and though we have taken critical steps toward operating with DEI as a core priority, we recognize there is still work to be done. 

    Separately, an area of interest for us has been racial equity audits. Recently, shareholders have focused on these audits, which generally consist of an objective investigation into a company’s practices, policies and histories to determine their impact on social issues and where there is room for improvement. Notably, in the first quarter of 2022, a financial services company agreed to a third-party audit of its $30 billion racial equity commitment alongside other similar companies. We thoughtfully engaged with a number of companies on this topic. We considered and voted on several shareholder proposals calling for companies to conduct and report on a thirdparty racial equity or civil rights audit. Although none of these proposals received majority support, the level of support received was high. We view this as a significant step in the right direction and will continue to focus on this subject in the future.

    Human rights and modern slavery
    Human rights–related issues continued to reflect a market-wide risk that is significant to us as investors. We continue to monitor issues in this area and play an active role in collective industry initiatives to further our analysis as we seek to shape issuer practices. 

    As part of our investment approach, MFS researches and evaluates a broad range of topics across security, asset class, industry, geography and other areas. These topics may include diversity and racial justice, modern slavery and child labor, income and wage inequality, supply chain labor management, health and safety (in both owned operations and supply chains), technology ethics and privacy, indigenous and local community rights, living standards, educational access and levels and the rule of law. 

    In conducting this research, we rely on a variety of data sources. Corporate disclosures, controversy analysis, sovereign country–level data and direct engagement with management teams and others (e.g., suppliers and sovereign issuer representatives) form the basis for much of our research; however, additional data points are also available to our investment teams to evaluate these topics. Most notably, we have evaluated data and analysis from Know the Chain, Ranking Digital Rights, Transparency International and the World Bank Governance Indicators. 

    An issuer’s exposure to human rights risks and opportunities varies substantially by issuer, industry and geography. For example, companies in certain industries may have higher modern slavery risks due to their use of temporary or seasonal labor or outsourcing. Separately, some countries exhibit a higher risk of modern slavery due to weak rule of law or other socioeconomic factors, which can impact both sovereign and sub-sovereign issues and the equities of companies that operate in those countries. 

    Given these complexities, MFS aims to integrate social factors including human rights risks and opportunities, alongside all other fundamental risks and opportunities, into our investment process. Actions that MFS may take to better evaluate human rights risks and opportunities include 

    • leveraging proprietary research produced by the firm’s internal equity – and fixed income – focused sustainability experts 
    • determining which issuers are likely to face modern slavery issues using in-depth security-and sector-level expertise
    • evaluating the company filings, including sustainability reports, of potentially impacted companies to evaluate the strength of their efforts to manage these risks 
    • incorporating the views of outside organizations with expertise in this area (e.g., Know the Chain) 
    • engaging with company management teams and fixed income issuer representatives about human rights–related risks and opportunities 
    • engaging with other investors through collaborative initiatives focused on human rights (e.g., the PRI and Investors Against Slavery and Trafficking) 
    • modeling and valuing human rights risks identified as material to the business

    Corporate tax practices and transparency
    Our ESG analysts continued to work with industry groups and government representatives to emphasize the importance of transparency and fairness in global corporate tax practices. Specifically, as a result of substantial changes at a national and supranational level, as well as greater scrutiny by civil society more broadly, we have spent considerable time researching and evaluating corporate tax practices over the past decade. We believe a company’s tax practices offer an important signal regarding a management team’s and board’s risk tolerance. Examples of our work in this area are outlined earlier in this report. 

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    Constructivism: A Collaborative Approach to Stewardship

    Constructivism: A Collaborative Approach to Stewardship

    • There are many forms of stewardship including conservatism, opportunism, constructivism and activism.
    • We believe constructive stewardship helps investors be value makers by more effectively influencing companies in which they invest.
    • This approach can provide an analytical advantage and act as a source of alpha generation.

    Read more about why MFS has chosen the constructivism camp and see examples of our stewardship in action.

    Read more

    Biodiversity, Natural Capital and the Scope 3 Debate

    Biodiversity, Natural Capital and the Scope 3 Debate

    • Biodiversity and natural capital are emerging areas that present risks and opportunities for investors.
    • As we approach various tipping points, the impact of the impairment of natural capital becomes more important.
    • There are serious analytical challenges in being able to determine winners or losers and even identify those most at risk.

    Read more about the importance of natural capital and our bottom-up framework to understand its impact on sectors and companies.

    Read more

    Sustainability in Fixed Income

    Sustainability in Fixed Income

    • We continue to focus on strengthening our ESG integration framework for various fixed income sub-asset classes, including corporate debt, sovereign debt and US municipal sub-sovereign debt.
    • We believe collaboration between our equity and fixed income teams deepens the team’s understanding of ESG issues and strengthens our research and engagement efforts.
    • For bondholders focused on financial materiality, sustainability can’t be considered an indicator of right or wrong, so the bottom-up assessment of issuers will remain essential in determining risk/rewards for bond valuations.

    Read more about how our investment team has engaged with companies to get a fuller picture.

    Read more

    Proxy Voting: A Pillar of Stewardship

    Proxy Voting: A Pillar of Stewardship 

    MFS maintains its own publicly available proxy voting policies and procedures, which provide a framework that guides our proxy voting decisions at approximately 2,000 meetings in over 50 different markets each year and includes procedures governing how we address potentially material conflicts of interest.

    The MFS Proxy Voting Committee oversees the administration of the MFS Proxy Voting Policies and Procedures. We believe that having a diverse range of perspectives leads to a thoughtful and collaborative process that guides MFS’ voting decisions and policy development. Franziska Jahn-Madell, MFS director of global stewardship, and Susan Pereira, vice president and managing counsel, co-chair the committee, which consists of senior members of our Investment, Legal and Global Investment Support departments. In order to mitigate the potential for material conflicts of interest, individuals whose primary duties relate to client relationship management, marketing or sales are not allowed to serve on the committee.

    The day-to-day management of our proxy voting and engagement activity is performed by our stewardship team. While many voting issues fall within the scope of our policies, many votes require a case-by-case analysis. As an active manager, we can leverage the collective expertise of the team with the unique perspectives and expertise of our global team of investment professionals. This process enables us to formulate viewpoints with multiple inputs, which we believe leads to well-informed voting decisions. The process also provides the investment team with opportunity to better understand the stewardship team’s viewpoints on a variety of topics, which in turn enables our investment professionals to integrate those viewpoints into their research process. As a result, when deciding on our position on certain types of votes the MFS Proxy Policies and Procedures do not provide explicit guidance on, the stewardship team often collaborates with other members of the investment team.

    Proxy voting policy update
    The Stewardship team led a review of the proxy voting policy with two core objectives in mind:

    1. Clarity, consistency and transparency — The policy was focused on the overall guiding principles used to make voting decisions. Additional wording was added to clarify our expectations on good governance and how we make voting decisions on areas such as executive compensation, board independence in non-US markets and the appointment of auditors. We also included specific examples of environmental and social shareholder proposals that we may support and included information on how we analyze certain environmental proposals that management may propose.
    2. Global approach — This approach reflects our view that key principles of good governance apply globally.

    It is important to note that our overall approach has not changed. We remain guided by the principle that voting decisions are made in what we believe to be in the best long-term economic interests of our clients. Changes were also made to certain voting guidelines, effective January 1, 2023, including these:

    1. Extending our current voting guideline addressing excessive service by directors on boards of outside public companies to markets outside the US (market standards permitting)
    2. Extending our current voting guideline with respect to board size to markets outside the US
    3. Expressing the view that companies in all markets should achieve a consistent minimum representation of women on their boards of at least one-third and continuing to raise our minimum expectations on board diversity: 22% (up from 20%) women for Australian, Canadian, European and US companies, less than 10% women for Japanese companies and at least one director who identifies as either an underrepresented ethnic or racial minority or member of the LGBTQ+ community at S&P 500 and FTSE 100 companies
    4. Amending our voting guideline with respect to the right to call special meetings by increasing the threshold from 10% to 15%
    5. Adding a voting guideline that when multiple share classes or other forms of disproportionate control are in place, we expect them to have sunset provisions of generally no longer than seven years, after which the vote structure becomes single class — one vote per share.

    We continue to develop our approach to proxy voting so that we can better identify and address areas of concern and be active stewards of assets. In 2023 we will undertake additional work in emerging markets, particularly to identify and set updated voting guidelines.

    2022 year in review
    MFS was eligible to vote on 24,393 ballot items at 2,056 shareholder meetings across 57 markets. The firm voted shares at approximately 99% of these meetings, with the remaining meetings not voted due to share-blocking concerns (15 meetings), government sanctions that legally precluded us from voting (one meeting) or market specific and other voting impediments (14 meetings). A full record of MFS’ proxy votes cast, including votes withheld and votes against management, is publicly available at www.mfs.com/sustainability. Simply select location and role to access our records.

    The map below shows the number of meetings voted around the world, along with the percentage of meetings voted within each region.

    Environmental issues
    MFS voted on 107 shareholder proposals related to environmental issues during 2022 (compared with 60 in 2021) and supported 43% of these proposals (compared with 37% in 2021).

    Social issues
    MFS voted on 196 shareholder proposals relating to social issues (compared with 111 in 2021) and supported 47% of these proposals (compared with 62% in 2021).

    Governance issues
    Corporate governance continues to be the most common focus of shareholder proposals we review each year. MFS voted on 342 such proposals (compared with 376 in 2021) and supported 53% (compared with 56% in 2021).

    Click button below to find out more on how MFS voted in several engagements including reviewing excessive executive pay.

    Review Say on Pay Votes

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  • CLIENT AND INDUSTRY ALIGNMENT

    As important as our investment approach is our steadfast focus on creating value responsibly for our clients. This section illuminates the ways in which we have sought to service, empower and align with the needs of our clients to help them fulfill their fiduciary duties.

    • Adherence to the UK Stewardship Code

    • Task Force on Climate-Related Financial Disclosures (TCFD)

    • Carbon Metrics

    • ESG Data and Tools

    Adherence to the UK Stewardship Code

    Adherence to the UK Stewardship Code

    The UK Stewardship Code is a prominent standard that guides investors not only in the United Kingdom but around the world. Adherence to the code requires that we demonstrate how we are effective stewards of our clients’ capital. In the spirit of deep integration, we have incorporated into this report our public response to the code.

    Download full report

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    Task Force on Climate-Related Financial Disclosures (TCFD)

    Task Force on Climate-Related Financial Disclosures (TCFD)

    Given recent and proposed regulatory changes and other factors, climate change is likely to be a defining investment topic for the decades ahead, creating financially material risks and opportunities for most issuers. Asset managers play a critical role in encouraging the issuers that we invest in to mitigate risks and properly address opportunities, including those related to the transition to a lower-carbon economy. As long-term investors seeking to allocate capital responsibly, we can use a variety of tools to increase the rate of change, which we believe will improve investment results and create value for our clients.

    Our journey with the TCFD began in 2019 when we first became a user signatory; however, researching climate risks and opportunities — incorporating carbon data into certain investment analyses, for example — has been a part of our investment process for many years. In addition, to bolster our understanding of the topic, we joined the Carbon Disclosure Project (CDP) in 2010, and we have joined numerous other industry initiatives over the years, such as the Climate Action 100+, the CDP’s Science-based Targets Campaign and the Net Zero Asset Managers initiative.

    Separate from our investment activity, MFS has reduced our own carbon footprint, and we achieved carbon neutrality in 2021.

    Click button below to read our Task Force on Climate-Related Financial Disclosures (TCFD) aligned report “2022 MFS Strategic Climate Action Plan”.

    Read Report

    Carbon Metrics

    Carbon Metrics

    We rely on a wide range of data and analysis when monitoring climate risk at the security and portfolio levels. This includes the level and quality of climate risk disclosure (e.g., CDP reporting), the adoption and quality of issuer carbon reduction targets (e.g., net zero targets, science-based targets, etc.) and progress toward these targets, such as rolling three- and five-year emissions trends.

    1Weighted Average Carbon Intensity (Scope 1+2) (tonnes CO2e/$revenues). Source: S&P/Trucost, FactSet, and Clarity AI. trademark and service mark.
    The information set forth above is dependent on the accuracy and availability of emissions data for which MFS relies on issuers and third-party data providers.
    Lower portfolio data coverage will yield less reliable carbon intensity metrics.

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    ESG Data and Tools

    ESG Data and Tools

    Sustainability issues are complex, interconnected and evolving too quickly for a single rating or data point to reflect the full extent of sustainability-related risks and opportunities facing a company or investment. There are still many inadequacies when it comes to the availability and comparability of ESG data, which is one reason we believe there is no substitute for in-depth issuer analysis. The assessment of materiality cannot be automated. 

    The availability, quality, consistency and comparability of ESG data is improving but started out poor. So far, we have not been able to identify any provider with good data on all material ESG considerations that we wish to consider. Therefore, we have chosen to take a best-of-breed approach — seeking to identify and acquire the best-in-class data on an issue. 

    As a result, MFS draws data from numerous third-party ESG data providers and a diverse group of nongovernmental and other organizations. These organizations provide ESG-related data, company and issuer analysis and ratings, and sector and country analysis. MFS also receives research support from a large and growing number of sell-side ESG investment analysts.

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    Use of third-party ratings 
    Many asset managers overrely on third-party ESG ratings. ESG is by its nature subjective and often involves considering risks or opportunities that are intangible and hard to measure. This leads us to conclude that weighing the risks facing an individual company (be they financial or nonfinancial) is very difficult to do accurately using the one-size-fits-all approach that the credit rating agencies must take. In our view, most ESG ratings providers generally employ a single-score approach (i.e., assigning a security or fund a rating), and the methodology by which this score is determined varies. Standardized data on E, S and G factors are harder to get than traditional financial metrics. Providers may use different data sources as inputs into their rating, which can result in varying outlooks for a company across ratings providers. It is difficult to accurately use the one-size-fits-all approach most ratings providers employ when evaluating securities or funds. As such, we consider the perspectives of multiple ratings providers in order to collate a more holistic view of a company, but we are careful not to overly on them in our research process.

    Updates from 2022 
    Given the importance of using transparent, reliable and accurate ESG data, our investment team is reaching out to our data providers at least annually to ask about various data points and their accuracy, suggest improvements and evaluate other providers for data we feel is not sufficient from an existing provider. We also seek out new providers we feel will enrich our research and expand our reporting capabilities and evaluate them on a case-by-case basis. We onboarded several data providers, notably Clarity AI, to help meet our regulatory and client reporting requirements. 

    Engagement dashboard 
    In 2021, we completed the initial development of our proprietary engagement platform. The platform is housed within our existing research database and augments the investment team’s ability to capture, track and collaborate on ongoing engagements with company management teams. Last year, we continued to build it out, focusing heavily on implementing proper usage processes. We made several enhancements to the way engagement data is tracked, displayed and stored and continue to focus on reconciling our broader research notes with what is available in the dashboard. We also added sovereign-specific criteria to the dashboard’s capabilities. That way, analysts logging information can now tag sovereign-specific criteria that is distinct from corporates. 

    Launch of RisQ 
    During the year, we launched RisQ within our existing research platform to help expand on the data coverage of our municipal bonds. This new functionality affords us the ability to access an array of ESG metrics for municipal bonds, such as exposure to climate risk, social impact scores, diversity statistics and more. So far, RisQ has been incredibly useful to us in helping to fill in ESG data gaps — a longstanding challenge in the municipal bond space. At this point, the platform is used only to supplement the research of the investment team, but we hope to use it in client reporting eventually.

  • CORPORATE SUSTAINABILITY AT MFS

    We aim to hold ourselves to the same standard we hold the businesses owned in our portfolios. As a result, we recognize the importance of implementing our sustainability philosophy in our own operations. In this section, we illustrate our efforts to better serve our employees, our communities, the environment and other stakeholders as we seek to foster a workplace reflective of our core values.

    • Diversity, Equity and Inclusion

    • Corporate Citizenship 

    • Our Impact on the Environment

    • Internal Sustainability Training

    Diversity, Equity and Inclusion

    Diversity, Equity and Inclusion 

    Diversity, Equity and Inclusion (DEI) is among our most important endeavors. Not only does DEI shape the way we operate as an organization and align with our clients, but it also drives us to support social justice pursuits, both in our communities and globally. Importantly, our progress on this journey starts with transparency and accountability; the snapshot below shows the groups that make up MFS' employees.

    Data as of December 31, 2022

     

    We know we still have a lot of work to do—and we will do it together. As we approach our 100-year anniversary, we can take pride in both the inclusive culture we've built and our firm-wide commitment to making it even better for centuries to come.

    We encourage you to click below button to read our full MFS 2022 Diversity Report.

    View Diversity Report

    Corporate Citizenship 

    Corporate Citizenship 

    As a firm committed to a culture of giving, MFS supports many organizations working in underserved communities — both financially and through the generous volunteerism of our employees. We participate in programs that empower our communities in key areas including health, education, civic engagement, the environment and social justice.

    Many of the organizations we support have been our partners for years. We believe that if we are going to support underserved populations, it’s important both to have long-term partnerships and to forge new ones when we see an opportunity to make a difference.

    As we look ahead, our corporate citizenship director envisions continuing these undertakings: 

    1. Fortifying partnerships — Strengthening partnerships with organizations that tie directly back to our purpose and engaging our employees in volunteer opportunities that are meaningful to them
    2. Expanding our outreach — Working with our recruiting team to extend our outreach to a more diverse field of candidates, focusing on underserved communities
    3. Leveraging ERG partnerships —Supporting community organizations through our ERGs, potentially helping to generate more support for causes that employees’ support 
    4. Responding to global crises — Helping out with humanitarian needs arising from crisis situations by taking such actions as donating $100,000 to the Red Cross in 2021 to help fight the COVID-19 crisis in India, $100,000 in 2022 to aid in relief efforts and provide assistance on the ground in Ukraine and $100,000 in 2023 to assist with relief efforts in the wake of the recent earthquake in Turkey and Syria

    We encourage you to click button below to read further on our community work.

    More Examples

    Our Impact on the Environment

    Our Impact on the Environment

    MFS has long been committed to improving the environmental outcomes of its business operations. This focus has resulted in a variety of initiatives aimed at reducing our impact on the environment. Since 2012, MFS’s headquarters in Boston, Massachusetts has met LEED Gold standards, and when possible we have applied similar measures and standards across our global footprint when renovating existing offices or building out new space. Over the past decade, we have also implemented a wide variety of programs such as server consolidation, low-energy lighting and appliance use, expanded recycling and pull-printing to help reduce waste and energy consumption.

    In 2020, to accelerate this work, we established a global, cross-functional environmental impact working group to improve our ability to understand, measure and reduce our overall environmental footprint. The group was tasked with developing goals and initiatives to reduce our environmental impact and continued this work throughout 2021. As part of this effort, and in partnership with our parent organization, Sun Life, we adopted a carbon neutrality plan. This program ensured that MFS achieved carbon neutrality in its business operations in both 2021 and 2022. The working group continues to examine all aspects of MFS business operations to identify where improvements can be made in measuring and further reducing emissions and resource consumption, including better data administration, waste management and energy efficiency, and working with our suppliers and vendors on the same. We are currently undertaking pilot programs in these areas.

    Download full report

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    Internal Sustainability Training

    Internal Sustainability Training

    Beginning in 2020, members of our sustainability strategy team launched an internal training course that offered all MFS employees the opportunity to deepen their understanding of sustainability-related topics and MFS’ investment ethos. As part of its annual review process, the course was updated and relaunched in 2023 to reflect new developments in the rapidly evolving space.

    The course is a part of our internal training program rollout and is designed to enhance employee understanding of important sustainability topics, deepen our expertise on how these topics are relevant to the firm and empower all MFS employees to better understand how sustainability ties into their daily work. With members of the distribution team particularly in mind, the course was structured to help inform conversations with clients and other stakeholders on important elements of sustainability given its strategic importance.

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    MFS may incorporate environmental, social, or governance (ESG) factors into its fundamental investment analysis and engagement activities when communicating with issuers. The examples provided above illustrate certain ways that MFS has historically incorporated ESG factors when analyzing or engaging with certain issuers but they are not intended to imply that favorable investment or engagement outcomes are guaranteed in all situations or in any individual situation. Engagements typically consist of a series of communications that are ongoing and often protracted, and may not necessarily result in changes to any issuer’s ESG-related practices. Issuer outcomes are based on many factors and favorable investment or engagement outcomes, including those described above, may be unrelated to MFS analysis or activities. The degree to which MFS incorporates ESG factors into investment analysis and engagement activities will vary by strategy, product, and asset class, and may also vary over time. Consequently, the examples above may not be representative of ESG factors used in the management of any investor’s portfolio. The information included above, as well as individual companies and/or securities mentioned, should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.

    Index data source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

    Statistics included in this report are calculated based on accounts for which MFS clients have fully delegated proxy voting authority pursuant to the MFS Proxy Voting Policies and Procedures. With the exception of the meetings voted statistics listed on page 47 of this report, all voting statistics exclude instances where MFS did not cast a vote. Statistics also do not include instances where an MFS client may have loaned shares and therefore was not eligible to vote. Statistics are calculated on a meetings-level basis. All engagement statistics listed above include only those managed by the MFS proxy team.

    As an active manager, please be advised that the companies named in this report may no longer be held by an MFS client at the time that this report is published.

    The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.

RESEARCH AND INVESTMENT OUTCOMES

We have consistently and thoughtfully combined analytic, bottom-up and thematic research and systematic risk management with robust active ownership in making our investment decisions. Remaining committed to this process, we have presented an overview of our sustainability initiatives, research and stewardship activities throughout the year.

  • Our Active Ownership Approach

  • Our Sustainability Structure and Working Groups

  • Market-Wide and Systemic Risks

  • Constructivism: A Collaborative Approach to Stewardship

  • Biodiversity, Natural Capital and the Scope 3 Debate

  • Sustainability in Fixed Income

  • Proxy Voting: A Pillar of Stewardship

Our Active Ownership Approach

Our Active Ownership Approach

We believe open communication with companies and issuers is an important aspect of our ownership. We also believe this approach, which we would characterize as collaborative, materiality oriented and issuer-focused, gives us an analytical advantage and can act as a source of alpha generation. It is our view that the best outcomes are most likely achieved through strong relationships and regular, mutual dialogue with our portfolio companies. 

Our goal when engaging is to exchange views on topics that represent material risks or opportunities for companies or issuers, and to effect positive change on such issues. We believe that long-term-oriented asset managers who engage companies on material topics can positively influence a multitude of better business practices, which will ultimately accrete value for our clients. Our engagement approach is driven by collaboration among all members of our investment platform, including our stewardship team. Our engagements take place consistently, and in different forms, often involving dialogue with company management, formal letters, ESG-focused board meetings and more. The two ways engagements are conducted are: 

  • solely by members of our investment/stewardship team 
  • in collaboration with other industry participants

We believe that collaborative engagement can generate positive impacts for industries, individual companies and a wide range of stakeholders, including shareholders. We actively participate in industry initiatives, organizations and working groups that seek to improve and provide guidance on corporate and investor best practices, integration and proxy voting issues.

MFS is a member of or signatory to a variety of organizations and initiatives that promote and coordinate collaborative engagement on sustainability topics, including the Principles for Responsible Investment (PRI), the US Investor Stewardship Group (ISG), the Workforce Disclosure Initiative (WDI), the CDP and the CDP Science Based Targets Campaign, Climate Action 100+ (CA100+) and Ceres. For example, the firm is an active participant in six CA100+ company engagements, and we are actively encouraging our portfolio companies to enhance disclosure and adopt best practices across sustainability topics, such as by setting science-based emissions reduction targets, addressing modern slavery and forced labor and enhancing disclosure around employee management practices. We are also signatories of, and adhere to, the UK, Japan and Australia Stewardship codes.

Our approach is centered around two aims, which in many cases overlap: 

  1. Knowledge exchange and monitoring — We seek engagement opportunities to improve our understanding of investee companies, which makes for better investment decisions. By engaging with a company to achieve specific goals, we are improving our understanding of the material risks it faces and also have the opportunity to share our own values and broader expectations. 
  2. Engagement with a focus on real-world change — When necessary, we try to challenge issuers’ behavior in relation to considerations that we feel are financially material to the company. We generally approach these engagements by setting specific objectives over the course of a specified period with the goal of influencing change in the real economy.

Click button below for a deeper dive into our approach on engagement, escalation and divestment.

OUR ACTIVE OWNERSHIP

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Our Sustainability Structure and Working Groups

Our Sustainability Structure and Working Groups

Our firm belief is that a successful approach to sustainability cannot be accomplished by building a separate team. The groups described below provide strategic leadership and support the effective integration of sustainability across the firm, but they do not conduct all or even the majority of our research on these topics. The responsibility for sustainability-related research falls on our entire team of investment professionals around the globe, who are experts in the companies and issuers they cover. 

The MFS Sustainability Executive Group (SEG) provides strategic leadership concerning the firm’s sustainability strategy. It includes our chair and CEO, president, CIO, CSO, CTO, general counsel and other senior leaders responsible for the integration of sustainability sustainability across the firm, but they do not conduct all or even the majority of our research on these topics. The SEG meets at least monthly to

  • develop long-term sustainability strategy, including climate change related issues 
  • advise on and coordinate the implementation of that strategy 
  • resolve any issues of prioritization and resource allocation for sustainability-related projects

Overall, our approach to governance is designed to ensure that we remain focused and relevant on all matters of sustainability. It is also designed to reflect the three core pillars of our strategic response — investment, client and corporate.

The Investment Sustainability Committee (ISC) 
The ISC is accountable for defining and implementing MFS’ strategy and policies  relating to the integration of sustainability in the investment process, engagement with issuers and escalation activities, the firm’s adherence to relevant stewardship codes (including the Australian, Japan and UK Stewardship codes) and MFS’ membership in investment-led collective engagement groups.

The Proxy Voting Committee (PVC)
The PVC oversees the adoption and administration of the MFS Proxy Voting Policies and Procedures as well as our proxy voting activities. As part of its responsibilities, it works with the ISC to create an integrated approach to setting engagement goals and priorities.

The Corporate Sustainability Committee (CSC) 
The CSC is accountable for defining and implementing MFS’ sustainability client and corporate strategies and policies to ensure consistency in interactions with clients on sustainability issues (e.g., reporting, regulation and education), providing oversight of membership in client-focused collective engagement groups and coordinating corporate sustainability efforts.

Working groups 
We have also embedded oversight and working groups in our investment process, namely the Climate Change Working Group, Societal Impact Working Group, Governance Working Group and Sovereign Risk Working Group. The task of these groups, among other things, is to encourage and evaluate progress made with respect to the integration of sustainability into the investment process.

ESG integration across geographic regions, client types and asset classes
Our investment team operates on a global research and investment platform. Our investment decisions are rooted in collaboration and consensus across our globally located investment teams, and thus we manage our clients’ assets the same way regardless of type, asset class or location. That said, we have investment personnel located in major financial centers all over the world. While our process remains consistent, this broad reach gives us the ability to dig deep into local issues and provide more insightful and better tailored research, which can be leveraged by our global investors.

Within our global research platform, we conduct high-quality, bottom-up analysis and engagement. We have over 300 investors in regions across the major markets in which we invest. This affords us the benefits of scale, allowing us to conduct thorough research into the companies we own using the diverse expertise of our platform to better help investees manage ESG risks and opportunities. Our fully integrated global research platform is the foundation of our investment process. We believe using a collaborative global structure to share and integrate information builds better insights for our clients. It allows us to look at viewpoints and opportunities from every angle and provides a global context for every decision.

Performance evaluation and compensation of investment personnel
MFS’ philosophy on compensation calls for us to align the compensation of investment personnel with the goal of providing shareholders with long-term value through a collaborative investment process. To achieve this, the firm believes that part of the compensation calculation should involve the degree to which personnel foster long-term investment performance and contribute to the overall investment process. The compensation of investment personnel consists of a base salary and performance bonus, with the latter typically representing most of the total cash compensation and based upon quantitative and qualitative factors. The main quantitative factor is the pretax performance of accounts managed over a fixed period to assess performance over a full market cycle and a strategy’s investment horizon. Qualitative factors, on the other hand, properly involve a person’s contribution to the investment team’s collaborative culture, including how well they consider and communicate material risks and opportunities. The qualitative portion of the team’s compensation is based on the results of an annual 360 degree peer review process, as well as an assessment of the analyst’s research processes. Sustainability is an explicit element of the qualitative assessment of performance alongside other factors such as teamwork, communication and collaboration throughout the investment process. The analysis of all material risks and opportunities is part of our investment process, and the long-term performance of each individual reflects this integration. It is our firm belief that each investor’s ability to recognize and integrate material, long term factors into their investment analysis does and will continue to materially impact this aspect of each investor’s compensation. 

We believe that this overall approach, rooted in incentivizing long-term performance, collaboration and the consideration of all financially material factors, exemplifies the firm’s prioritization of stewardship.

Find out more on how the teams at MFS work together to ensure that ESG integration is embedded into our investment process. 

Find out more

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Market-Wide and Systemic Risks

Market-Wide and Systemic Risks

Our investment teams focused on assessing several risks in 2022 and describe how these risks have influenced our investment and engagement processes. The consideration of these risks is additionally reflected throughout this report in the discussion of our investment, engagement and collective initiative activities.

Climate change
We believe that climate change will be a defining investment topic in the decade ahead, creating risks and opportunities for all businesses and society in general. As long-term investors seeking to allocate capital responsibly, MFS is carefully analyzing the impact that climate change is having on all companies held in our clients’ portfolios, as well as on those companies being considered for future investment. We invite you to read the firm’s report aligned with the Task Force for Climate-Related Financial Disclosures (TCFD) framework. 

A “Just Transition” 
As you will read throughout this report, we have a stated commitment to mitigating climate change in line with the goals of the Paris Agreement because we view it as a universally material risk. We want to ensure our approach to climate change does not become myopic, and so we have increased our focus on topics such as the “Just Transition” as well as biodiversity loss, and what this means for us as investors. The idea behind the just transition is that meeting the goals of the Paris Agreement through various environmental objectives also requires us to think about what impact this will have on communities of people affected by the transition. Understanding these impacts will take time, as climate transition plans and decarbonization pathways are still in the beginning stages. As we seek greater disclosure from companies in these pursuits, we are also honing in on what this means for all relevant stakeholders.

Labor and income inequality
Labor and income inequality has remained a key theme since the onset of the COVID-19 pandemic, which brought to light the challenges faced by low-wage and hourly workers. In response to this, MFS analysts and portfolio managers took these actions:

  • Engaged with many companies on their employee practices
  • Spoke to members of multiple trade unions to obtain labor’s viewpoint
  • Held sector team meetings to review data on employee wages, satisfaction and other factors

Corporate culture and diversity
Our investment team spends considerable time evaluating the impact of corporate culture on individual companies. We have seen circumstances in which culture has clearly helped a company but also situations in which culture has apparently led to negative outcomes for a company, its employees and ultimately its stock price. We firmly believe an organization’s culture is critical to its long-term success or failure. Analysis is an important part of our evaluation of corporate culture at any organization, considering factors such as employee engagement, turnover, pay, composition, diversity, gender, race and cognitive and other measures of diversity such as gender pay gap. Over the past several years, our investment team has spent a great deal of time discussing the importance and potential impact of corporate culture on sustainability. As investors, we believe enhanced transparency and disclosure is critical and can have a material impact on our investment decisions. We feel strongly that we should be willing to disclose the same data we expect our portfolio companies to disclose. Importantly, we believe this area is an ongoing journey for both MFS and our industry and though we have taken critical steps toward operating with DEI as a core priority, we recognize there is still work to be done. 

Separately, an area of interest for us has been racial equity audits. Recently, shareholders have focused on these audits, which generally consist of an objective investigation into a company’s practices, policies and histories to determine their impact on social issues and where there is room for improvement. Notably, in the first quarter of 2022, a financial services company agreed to a third-party audit of its $30 billion racial equity commitment alongside other similar companies. We thoughtfully engaged with a number of companies on this topic. We considered and voted on several shareholder proposals calling for companies to conduct and report on a thirdparty racial equity or civil rights audit. Although none of these proposals received majority support, the level of support received was high. We view this as a significant step in the right direction and will continue to focus on this subject in the future.

Human rights and modern slavery
Human rights–related issues continued to reflect a market-wide risk that is significant to us as investors. We continue to monitor issues in this area and play an active role in collective industry initiatives to further our analysis as we seek to shape issuer practices. 

As part of our investment approach, MFS researches and evaluates a broad range of topics across security, asset class, industry, geography and other areas. These topics may include diversity and racial justice, modern slavery and child labor, income and wage inequality, supply chain labor management, health and safety (in both owned operations and supply chains), technology ethics and privacy, indigenous and local community rights, living standards, educational access and levels and the rule of law. 

In conducting this research, we rely on a variety of data sources. Corporate disclosures, controversy analysis, sovereign country–level data and direct engagement with management teams and others (e.g., suppliers and sovereign issuer representatives) form the basis for much of our research; however, additional data points are also available to our investment teams to evaluate these topics. Most notably, we have evaluated data and analysis from Know the Chain, Ranking Digital Rights, Transparency International and the World Bank Governance Indicators. 

An issuer’s exposure to human rights risks and opportunities varies substantially by issuer, industry and geography. For example, companies in certain industries may have higher modern slavery risks due to their use of temporary or seasonal labor or outsourcing. Separately, some countries exhibit a higher risk of modern slavery due to weak rule of law or other socioeconomic factors, which can impact both sovereign and sub-sovereign issues and the equities of companies that operate in those countries. 

Given these complexities, MFS aims to integrate social factors including human rights risks and opportunities, alongside all other fundamental risks and opportunities, into our investment process. Actions that MFS may take to better evaluate human rights risks and opportunities include 

  • leveraging proprietary research produced by the firm’s internal equity – and fixed income – focused sustainability experts 
  • determining which issuers are likely to face modern slavery issues using in-depth security-and sector-level expertise
  • evaluating the company filings, including sustainability reports, of potentially impacted companies to evaluate the strength of their efforts to manage these risks 
  • incorporating the views of outside organizations with expertise in this area (e.g., Know the Chain) 
  • engaging with company management teams and fixed income issuer representatives about human rights–related risks and opportunities 
  • engaging with other investors through collaborative initiatives focused on human rights (e.g., the PRI and Investors Against Slavery and Trafficking) 
  • modeling and valuing human rights risks identified as material to the business

Corporate tax practices and transparency
Our ESG analysts continued to work with industry groups and government representatives to emphasize the importance of transparency and fairness in global corporate tax practices. Specifically, as a result of substantial changes at a national and supranational level, as well as greater scrutiny by civil society more broadly, we have spent considerable time researching and evaluating corporate tax practices over the past decade. We believe a company’s tax practices offer an important signal regarding a management team’s and board’s risk tolerance. Examples of our work in this area are outlined earlier in this report. 

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Constructivism: A Collaborative Approach to Stewardship

Constructivism: A Collaborative Approach to Stewardship

  • There are many forms of stewardship including conservatism, opportunism, constructivism and activism.
  • We believe constructive stewardship helps investors be value makers by more effectively influencing companies in which they invest.
  • This approach can provide an analytical advantage and act as a source of alpha generation.

Read more about why MFS has chosen the constructivism camp and see examples of our stewardship in action.

Read more

Biodiversity, Natural Capital and the Scope 3 Debate

Biodiversity, Natural Capital and the Scope 3 Debate

  • Biodiversity and natural capital are emerging areas that present risks and opportunities for investors.
  • As we approach various tipping points, the impact of the impairment of natural capital becomes more important.
  • There are serious analytical challenges in being able to determine winners or losers and even identify those most at risk.

Read more about the importance of natural capital and our bottom-up framework to understand its impact on sectors and companies.

Read more

Sustainability in Fixed Income

Sustainability in Fixed Income

  • We continue to focus on strengthening our ESG integration framework for various fixed income sub-asset classes, including corporate debt, sovereign debt and US municipal sub-sovereign debt.
  • We believe collaboration between our equity and fixed income teams deepens the team’s understanding of ESG issues and strengthens our research and engagement efforts.
  • For bondholders focused on financial materiality, sustainability can’t be considered an indicator of right or wrong, so the bottom-up assessment of issuers will remain essential in determining risk/rewards for bond valuations.

Read more about how our investment team has engaged with companies to get a fuller picture.

Read more

Proxy Voting: A Pillar of Stewardship

Proxy Voting: A Pillar of Stewardship 

MFS maintains its own publicly available proxy voting policies and procedures, which provide a framework that guides our proxy voting decisions at approximately 2,000 meetings in over 50 different markets each year and includes procedures governing how we address potentially material conflicts of interest.

The MFS Proxy Voting Committee oversees the administration of the MFS Proxy Voting Policies and Procedures. We believe that having a diverse range of perspectives leads to a thoughtful and collaborative process that guides MFS’ voting decisions and policy development. Franziska Jahn-Madell, MFS director of global stewardship, and Susan Pereira, vice president and managing counsel, co-chair the committee, which consists of senior members of our Investment, Legal and Global Investment Support departments. In order to mitigate the potential for material conflicts of interest, individuals whose primary duties relate to client relationship management, marketing or sales are not allowed to serve on the committee.

The day-to-day management of our proxy voting and engagement activity is performed by our stewardship team. While many voting issues fall within the scope of our policies, many votes require a case-by-case analysis. As an active manager, we can leverage the collective expertise of the team with the unique perspectives and expertise of our global team of investment professionals. This process enables us to formulate viewpoints with multiple inputs, which we believe leads to well-informed voting decisions. The process also provides the investment team with opportunity to better understand the stewardship team’s viewpoints on a variety of topics, which in turn enables our investment professionals to integrate those viewpoints into their research process. As a result, when deciding on our position on certain types of votes the MFS Proxy Policies and Procedures do not provide explicit guidance on, the stewardship team often collaborates with other members of the investment team.

Proxy voting policy update
The Stewardship team led a review of the proxy voting policy with two core objectives in mind:

  1. Clarity, consistency and transparency — The policy was focused on the overall guiding principles used to make voting decisions. Additional wording was added to clarify our expectations on good governance and how we make voting decisions on areas such as executive compensation, board independence in non-US markets and the appointment of auditors. We also included specific examples of environmental and social shareholder proposals that we may support and included information on how we analyze certain environmental proposals that management may propose.
  2. Global approach — This approach reflects our view that key principles of good governance apply globally.

It is important to note that our overall approach has not changed. We remain guided by the principle that voting decisions are made in what we believe to be in the best long-term economic interests of our clients. Changes were also made to certain voting guidelines, effective January 1, 2023, including these:

  1. Extending our current voting guideline addressing excessive service by directors on boards of outside public companies to markets outside the US (market standards permitting)
  2. Extending our current voting guideline with respect to board size to markets outside the US
  3. Expressing the view that companies in all markets should achieve a consistent minimum representation of women on their boards of at least one-third and continuing to raise our minimum expectations on board diversity: 22% (up from 20%) women for Australian, Canadian, European and US companies, less than 10% women for Japanese companies and at least one director who identifies as either an underrepresented ethnic or racial minority or member of the LGBTQ+ community at S&P 500 and FTSE 100 companies
  4. Amending our voting guideline with respect to the right to call special meetings by increasing the threshold from 10% to 15%
  5. Adding a voting guideline that when multiple share classes or other forms of disproportionate control are in place, we expect them to have sunset provisions of generally no longer than seven years, after which the vote structure becomes single class — one vote per share.

We continue to develop our approach to proxy voting so that we can better identify and address areas of concern and be active stewards of assets. In 2023 we will undertake additional work in emerging markets, particularly to identify and set updated voting guidelines.

2022 year in review
MFS was eligible to vote on 24,393 ballot items at 2,056 shareholder meetings across 57 markets. The firm voted shares at approximately 99% of these meetings, with the remaining meetings not voted due to share-blocking concerns (15 meetings), government sanctions that legally precluded us from voting (one meeting) or market specific and other voting impediments (14 meetings). A full record of MFS’ proxy votes cast, including votes withheld and votes against management, is publicly available at www.mfs.com/sustainability. Simply select location and role to access our records.

The map below shows the number of meetings voted around the world, along with the percentage of meetings voted within each region.

Environmental issues
MFS voted on 107 shareholder proposals related to environmental issues during 2022 (compared with 60 in 2021) and supported 43% of these proposals (compared with 37% in 2021).

Social issues
MFS voted on 196 shareholder proposals relating to social issues (compared with 111 in 2021) and supported 47% of these proposals (compared with 62% in 2021).

Governance issues
Corporate governance continues to be the most common focus of shareholder proposals we review each year. MFS voted on 342 such proposals (compared with 376 in 2021) and supported 53% (compared with 56% in 2021).

Click button below to find out more on how MFS voted in several engagements including reviewing excessive executive pay.

Review Say on Pay Votes

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CLIENT AND INDUSTRY ALIGNMENT

As important as our investment approach is our steadfast focus on creating value responsibly for our clients. This section illuminates the ways in which we have sought to service, empower and align with the needs of our clients to help them fulfill their fiduciary duties.

  • Adherence to the UK Stewardship Code

  • Task Force on Climate-Related Financial Disclosures (TCFD)

  • Carbon Metrics

  • ESG Data and Tools

Adherence to the UK Stewardship Code

Adherence to the UK Stewardship Code

The UK Stewardship Code is a prominent standard that guides investors not only in the United Kingdom but around the world. Adherence to the code requires that we demonstrate how we are effective stewards of our clients’ capital. In the spirit of deep integration, we have incorporated into this report our public response to the code.

Download full report

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Task Force on Climate-Related Financial Disclosures (TCFD)

Task Force on Climate-Related Financial Disclosures (TCFD)

Given recent and proposed regulatory changes and other factors, climate change is likely to be a defining investment topic for the decades ahead, creating financially material risks and opportunities for most issuers. Asset managers play a critical role in encouraging the issuers that we invest in to mitigate risks and properly address opportunities, including those related to the transition to a lower-carbon economy. As long-term investors seeking to allocate capital responsibly, we can use a variety of tools to increase the rate of change, which we believe will improve investment results and create value for our clients.

Our journey with the TCFD began in 2019 when we first became a user signatory; however, researching climate risks and opportunities — incorporating carbon data into certain investment analyses, for example — has been a part of our investment process for many years. In addition, to bolster our understanding of the topic, we joined the Carbon Disclosure Project (CDP) in 2010, and we have joined numerous other industry initiatives over the years, such as the Climate Action 100+, the CDP’s Science-based Targets Campaign and the Net Zero Asset Managers initiative.

Separate from our investment activity, MFS has reduced our own carbon footprint, and we achieved carbon neutrality in 2021.

Click button below to read our Task Force on Climate-Related Financial Disclosures (TCFD) aligned report “2022 MFS Strategic Climate Action Plan”.

Read Report

Carbon Metrics

Carbon Metrics

We rely on a wide range of data and analysis when monitoring climate risk at the security and portfolio levels. This includes the level and quality of climate risk disclosure (e.g., CDP reporting), the adoption and quality of issuer carbon reduction targets (e.g., net zero targets, science-based targets, etc.) and progress toward these targets, such as rolling three- and five-year emissions trends.

1Weighted Average Carbon Intensity (Scope 1+2) (tonnes CO2e/$revenues). Source: S&P/Trucost, FactSet, and Clarity AI. trademark and service mark.
The information set forth above is dependent on the accuracy and availability of emissions data for which MFS relies on issuers and third-party data providers.
Lower portfolio data coverage will yield less reliable carbon intensity metrics.

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ESG Data and Tools

ESG Data and Tools

Sustainability issues are complex, interconnected and evolving too quickly for a single rating or data point to reflect the full extent of sustainability-related risks and opportunities facing a company or investment. There are still many inadequacies when it comes to the availability and comparability of ESG data, which is one reason we believe there is no substitute for in-depth issuer analysis. The assessment of materiality cannot be automated. 

The availability, quality, consistency and comparability of ESG data is improving but started out poor. So far, we have not been able to identify any provider with good data on all material ESG considerations that we wish to consider. Therefore, we have chosen to take a best-of-breed approach — seeking to identify and acquire the best-in-class data on an issue. 

As a result, MFS draws data from numerous third-party ESG data providers and a diverse group of nongovernmental and other organizations. These organizations provide ESG-related data, company and issuer analysis and ratings, and sector and country analysis. MFS also receives research support from a large and growing number of sell-side ESG investment analysts.

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Use of third-party ratings 
Many asset managers overrely on third-party ESG ratings. ESG is by its nature subjective and often involves considering risks or opportunities that are intangible and hard to measure. This leads us to conclude that weighing the risks facing an individual company (be they financial or nonfinancial) is very difficult to do accurately using the one-size-fits-all approach that the credit rating agencies must take. In our view, most ESG ratings providers generally employ a single-score approach (i.e., assigning a security or fund a rating), and the methodology by which this score is determined varies. Standardized data on E, S and G factors are harder to get than traditional financial metrics. Providers may use different data sources as inputs into their rating, which can result in varying outlooks for a company across ratings providers. It is difficult to accurately use the one-size-fits-all approach most ratings providers employ when evaluating securities or funds. As such, we consider the perspectives of multiple ratings providers in order to collate a more holistic view of a company, but we are careful not to overly on them in our research process.

Updates from 2022 
Given the importance of using transparent, reliable and accurate ESG data, our investment team is reaching out to our data providers at least annually to ask about various data points and their accuracy, suggest improvements and evaluate other providers for data we feel is not sufficient from an existing provider. We also seek out new providers we feel will enrich our research and expand our reporting capabilities and evaluate them on a case-by-case basis. We onboarded several data providers, notably Clarity AI, to help meet our regulatory and client reporting requirements. 

Engagement dashboard 
In 2021, we completed the initial development of our proprietary engagement platform. The platform is housed within our existing research database and augments the investment team’s ability to capture, track and collaborate on ongoing engagements with company management teams. Last year, we continued to build it out, focusing heavily on implementing proper usage processes. We made several enhancements to the way engagement data is tracked, displayed and stored and continue to focus on reconciling our broader research notes with what is available in the dashboard. We also added sovereign-specific criteria to the dashboard’s capabilities. That way, analysts logging information can now tag sovereign-specific criteria that is distinct from corporates. 

Launch of RisQ 
During the year, we launched RisQ within our existing research platform to help expand on the data coverage of our municipal bonds. This new functionality affords us the ability to access an array of ESG metrics for municipal bonds, such as exposure to climate risk, social impact scores, diversity statistics and more. So far, RisQ has been incredibly useful to us in helping to fill in ESG data gaps — a longstanding challenge in the municipal bond space. At this point, the platform is used only to supplement the research of the investment team, but we hope to use it in client reporting eventually.

CORPORATE SUSTAINABILITY AT MFS

We aim to hold ourselves to the same standard we hold the businesses owned in our portfolios. As a result, we recognize the importance of implementing our sustainability philosophy in our own operations. In this section, we illustrate our efforts to better serve our employees, our communities, the environment and other stakeholders as we seek to foster a workplace reflective of our core values.

  • Diversity, Equity and Inclusion

  • Corporate Citizenship 

  • Our Impact on the Environment

  • Internal Sustainability Training

Diversity, Equity and Inclusion

Diversity, Equity and Inclusion 

Diversity, Equity and Inclusion (DEI) is among our most important endeavors. Not only does DEI shape the way we operate as an organization and align with our clients, but it also drives us to support social justice pursuits, both in our communities and globally. Importantly, our progress on this journey starts with transparency and accountability; the snapshot below shows the groups that make up MFS' employees.

Data as of December 31, 2022

 

We know we still have a lot of work to do—and we will do it together. As we approach our 100-year anniversary, we can take pride in both the inclusive culture we've built and our firm-wide commitment to making it even better for centuries to come.

We encourage you to click below button to read our full MFS 2022 Diversity Report.

View Diversity Report

Corporate Citizenship 

Corporate Citizenship 

As a firm committed to a culture of giving, MFS supports many organizations working in underserved communities — both financially and through the generous volunteerism of our employees. We participate in programs that empower our communities in key areas including health, education, civic engagement, the environment and social justice.

Many of the organizations we support have been our partners for years. We believe that if we are going to support underserved populations, it’s important both to have long-term partnerships and to forge new ones when we see an opportunity to make a difference.

As we look ahead, our corporate citizenship director envisions continuing these undertakings: 

  1. Fortifying partnerships — Strengthening partnerships with organizations that tie directly back to our purpose and engaging our employees in volunteer opportunities that are meaningful to them
  2. Expanding our outreach — Working with our recruiting team to extend our outreach to a more diverse field of candidates, focusing on underserved communities
  3. Leveraging ERG partnerships —Supporting community organizations through our ERGs, potentially helping to generate more support for causes that employees’ support 
  4. Responding to global crises — Helping out with humanitarian needs arising from crisis situations by taking such actions as donating $100,000 to the Red Cross in 2021 to help fight the COVID-19 crisis in India, $100,000 in 2022 to aid in relief efforts and provide assistance on the ground in Ukraine and $100,000 in 2023 to assist with relief efforts in the wake of the recent earthquake in Turkey and Syria

We encourage you to click button below to read further on our community work.

More Examples

Our Impact on the Environment

Our Impact on the Environment

MFS has long been committed to improving the environmental outcomes of its business operations. This focus has resulted in a variety of initiatives aimed at reducing our impact on the environment. Since 2012, MFS’s headquarters in Boston, Massachusetts has met LEED Gold standards, and when possible we have applied similar measures and standards across our global footprint when renovating existing offices or building out new space. Over the past decade, we have also implemented a wide variety of programs such as server consolidation, low-energy lighting and appliance use, expanded recycling and pull-printing to help reduce waste and energy consumption.

In 2020, to accelerate this work, we established a global, cross-functional environmental impact working group to improve our ability to understand, measure and reduce our overall environmental footprint. The group was tasked with developing goals and initiatives to reduce our environmental impact and continued this work throughout 2021. As part of this effort, and in partnership with our parent organization, Sun Life, we adopted a carbon neutrality plan. This program ensured that MFS achieved carbon neutrality in its business operations in both 2021 and 2022. The working group continues to examine all aspects of MFS business operations to identify where improvements can be made in measuring and further reducing emissions and resource consumption, including better data administration, waste management and energy efficiency, and working with our suppliers and vendors on the same. We are currently undertaking pilot programs in these areas.

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Internal Sustainability Training

Internal Sustainability Training

Beginning in 2020, members of our sustainability strategy team launched an internal training course that offered all MFS employees the opportunity to deepen their understanding of sustainability-related topics and MFS’ investment ethos. As part of its annual review process, the course was updated and relaunched in 2023 to reflect new developments in the rapidly evolving space.

The course is a part of our internal training program rollout and is designed to enhance employee understanding of important sustainability topics, deepen our expertise on how these topics are relevant to the firm and empower all MFS employees to better understand how sustainability ties into their daily work. With members of the distribution team particularly in mind, the course was structured to help inform conversations with clients and other stakeholders on important elements of sustainability given its strategic importance.

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MFS may incorporate environmental, social, or governance (ESG) factors into its fundamental investment analysis and engagement activities when communicating with issuers. The examples provided above illustrate certain ways that MFS has historically incorporated ESG factors when analyzing or engaging with certain issuers but they are not intended to imply that favorable investment or engagement outcomes are guaranteed in all situations or in any individual situation. Engagements typically consist of a series of communications that are ongoing and often protracted, and may not necessarily result in changes to any issuer’s ESG-related practices. Issuer outcomes are based on many factors and favorable investment or engagement outcomes, including those described above, may be unrelated to MFS analysis or activities. The degree to which MFS incorporates ESG factors into investment analysis and engagement activities will vary by strategy, product, and asset class, and may also vary over time. Consequently, the examples above may not be representative of ESG factors used in the management of any investor’s portfolio. The information included above, as well as individual companies and/or securities mentioned, should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.

Index data source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

Statistics included in this report are calculated based on accounts for which MFS clients have fully delegated proxy voting authority pursuant to the MFS Proxy Voting Policies and Procedures. With the exception of the meetings voted statistics listed on page 47 of this report, all voting statistics exclude instances where MFS did not cast a vote. Statistics also do not include instances where an MFS client may have loaned shares and therefore was not eligible to vote. Statistics are calculated on a meetings-level basis. All engagement statistics listed above include only those managed by the MFS proxy team.

As an active manager, please be advised that the companies named in this report may no longer be held by an MFS client at the time that this report is published.

The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.

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