September 25, 2024

Company on the test bench

To become part of the Forma Futura investment universe, companies must undergo a multi-stage selection process. This consists of an external basic review, an in-house financial analysis and a final sustainability analysis. From a global pool of over 12,000 companies, only around 250 ultimately meet Forma Futura's strict criteria.

Forma Futura introduced the company dialog back in 2011. This tool adds a crucial component to the analysis process: personal contact with the companies under review.

"Dialogue means compromise: we accept each other's opinions."

There are various triggers in the course of a research process to initiate such a company dialog:

• Information from the company analysis is not sufficient for an assessment
• Controversial corporate activities
• Research on various sustainability topics

In the company dialog, individual questions relating to the company are asked that arise from the analysis process. The focus is on topics such as employee and supplier policy, tax transparency, environmental targets and genetic engineering or nanotechnology. Interesting listed Swiss SMEs are also visited on site. The content and form of such dialogs are incorporated into the company valuation.

Escalation strategies for credible sustainable investing

Forma Futura is characterized by a systematic and consistent approach to corporate dialogue. The core component of this approach is a clearly defined escalation strategy. This describes a step-by-step escalation path of the corporate dialog in the sense of building up pressure on companies if the dialog is unsatisfactory. The aim is to gradually give greater emphasis and weight to demands made of companies.

Although corporate dialogue is widely recognized as an effective lever, it is sometimes used by financial actors as a fig leaf to remain invested in "dirty" companies. In such dialogs, often no significant demands are made on the companies, nor are there any consequences in case the dialog does not lead to a satisfactory outcome. Escalation stages in the process are therefore of great importance.

Forma Futura's company dialog is based on a four-stage escalation path, which ranges from the initiation of dialog to the deduction of points and exclusion from the Forma Futura investment universe and offers various options at each stage. If we rate a company's response as unsatisfactory (e.g. due to poor quality or missed deadlines), the next escalation level is triggered.

The escalation process is therefore not predefined, but can be adapted to the situation of the invested company or the controversy. We consider collaborative company dialogs conducted together with other financial institutions, such as the members of the Shareholder for Change network, to be a particularly efficient tool.

However, concrete activities are even more important than strategies and process definitions. Both the relatively high response rate of 79% and the predominantly high quality of the responses prove that the corporate dialog is being taken seriously and is having an impact. This process sensitizes companies to problematic aspects of their sustainability performance and motivates them to operate in an ecologically and socially responsible manner. In this way, Forma Futura can raise awareness among key market players over and above its investment activities. The common goal is to make a steadily growing contribution to improving the sustainable quality of life.

Two case studies of corporate dialog

On an encouraging path: SonocoOn an encouraging path: Sonoco

Sonoco is a US packaging group that manufactures packaging solutions ranging from rigid paper and plastic to flexible packaging and hybrid options. During the company analysis in spring 2024, Forma Futura's sustainability team identified a number of deficits in the area of sustainability performance. These included a low proportion of renewable energy in the energy mix used, the continued use of coal as an energy source and a lack of information on stakeholder dialog. A company dialog was initiated with Sonoco to express concerns about the company and to assess whether it should remain in the Forma Futura investment universe.

The Sonoco team was responsive and suggested a video conference to discuss the issues and recommendations raised. During the call, a member of the investment relations team and a senior member of Sonoco's sustainability team were able to provide us with satisfactory answers to the stakeholder dialog. Regarding the continued use of coal, Forma Futura was able to learn that only two paper mills in Asia are affected and that a complete phase-out of coal is planned by 2030. Sonoco has also introduced concrete measures to increase the proportion of renewable energies.

The engagement with Sonoco convinced us that the company is consistently tackling the implementation of a more sustainable business model. Sonoco's representatives responded to Forma Futura's suggestions for improvement, asked follow-up questions and wanted to know which companies Forma Futura considers to be leaders in sustainability in order to use positive examples for the company's further development. Forma Futura is particularly pleased with this, as our influence is greatest when we can directly contribute our expertise to positively influence business practices in the long term. Sonoco therefore remains in our investment universe and will be analyzed again in a few years' time to assess its progress.

Exclusion for good reason: Forbo

Forbo Holding is an internationally active Swiss manufacturer of floor coverings and construction adhesives as well as drive and light conveyor technology. As part of the company analysis in 2024, it was determined that the company will continue to maintain its two sites in Russia. This business unit of Forbo operates profitably and thus also provides taxes to the Russian government, which in turn can be used to finance the Russian war machine in the context of the war in Ukraine.

Forbo does not produce goods that are considered critical to the well-being and health of the Russian population (such as medicines). For this reason, Forma Futura considers the continuation of business activities that could co-finance Russia's war effort to be problematic. Forma Futura has therefore started a dialog with Forbo to find out what plans the company has for its two Russian sites and what its position is on this issue. The engagement also included questions about the representation of women at management level, supply chain management and water consumption.

Unfortunately, the response we received from Forbo was dismissive. The company flatly refused to address the issue of the two sites in Russia and did not respond to any further questions. Forma Futura had been aware of this unwillingness to discuss sensitive issues and respond to specific questions for several years. Although Forma Futura understands that a company does not want to answer all investor concerns bilaterally, in this case Forma Futura's sustainability team is being denied the most important means by which it could gather more information about a company and also positively influence its business practices. In light of this, Forma Futura has decided to exclude Forbo from its investment universe. All Forbo holdings were sold by September 2024.