It is critical asset managers report back to pension schemes and fund members to ensure ‘effective’ stewardship programmes and help drive changes on ESG issues.
Speaking at Corporate Adviser’s virtual ESG Forum Glass Lewis vice president of research, engagement and stewardship Andrew Gebelin, set out that advances that had been made in this areas in recent years, as well outlining the challenges ahead.
“I have been with Glass Lewis for 14 years and seen investment stewardship go from a fuzzy concept that nobody really knew what it meant to something that’s really at the top of the agenda.”
While he said that this has been “a great evolution to see” there is still progress to be made. He says for pensions funds there needs to be greater clarity on the “next steps” of engaging voting and “evaluating outcomes and on reporting”.
He says that pension funds are starting to address ESG issues, or example by drawing up exclusions on issues like controversial weapon, or using index funds that tilt towards companies with lower carbon footprints.
This are good solid starting blocks, he says, but there is still the potential to deliver more through active stewardship programmes. “Even if you exclude the most controversial stocks and include only the best ESG opportunities, every other investment still obviously carrie risk.
“In order to be a good steward of investment some level of engagement is still required to monitor both ESG and financial risks and to ensure companies are reacting to those risks, or improving their practices.”
Gebelin says that there are many options institutional investors can take to enforce standards and ensure companies hear the message that they need to act.
“Shareholders have a very powerful voice in their vote, and it’s clear companies can not continue to ignore that.” He says for example investors can vote against a chair being re-elected to the board if a company has failed to take action on climate change.
However he adds that there was a need for evaluation and statistical analysis of this engagement process to see what works. “It might be a case study analysis of a company the provider engaged with, how they voted at the meeting and how the company actually changed its behaviour as a result. This is a very important step in the process.
Gebelin adds: “Whether you are doing this yourself or delegating this to an asset manager should be clear to you how engagement and voting actually had an effect on corporate behaviour.”
To date, he says, thematic engagement is probably the most common way firms to address these stewardship issues, for example engaging with companies on a one-to-one basis around sustainable development goals.
“Collaborative engagement is probably the best way to have good outcomes. Typically, the more investors who come together with the same message, the more likely it is there to have that message heard and to have companies act on it.”
He also recommended a more “systemic approach to engagement”, which involves engaging with regulators or standard setters. Gebelin says Glass Lewis works with institutional investors, the vast majority of which comes to them with custom policies they want to implement.
“So they have a statement of principles, say we want companies to adopt this particular practise. And if they don’t, we’re going to vote against a particular issue. So that’s our what our platform does. We have a platform called Viewpoint that specifically implements those votes in accordance with our client’s needs.”
The most clear examples are on climate he says, but there are also increasingly policies on diversity.
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