To date, 2020 has marked record inflows to sustainable investments. Elevated globally by a health, social and financial crisis; investors and stakeholders alike are coming to understand the inherent risk of ignoring key environmental, social and governance factors. Current events coupled with new regulations and stakeholder pressure are creating the need for investors to demonstrate their commitment as responsible owners who view corporate accountability as a means to achieving greater long-term value.
Active ownership is a key contributor to investor action toward transitioning to a more sustainable economy. In developing an active ownership strategy, considerations should be made to address alignment with stewardship principles and codes and an investor’s investment and/or ESG ethos. Given the range of activities that fit in an active ownership policy, the need for well-articulated policies and approaches is vital. The purpose of any program should be to demonstrate a holistic approach to active ownership consistent across research, voting and engagement activities, supporting investors’ stated investment and/or ESG objectives ensuring their words and actions line up.
On paper vs in practice
Aside from an impact on reputation, does misalignment of a vote tarnish the saliency of the investor’s voice? A successful engagement dialogue with a company often comes down to the legitimacy of the issue and the actor who brings the issue to the table; so, we say that the answer is likely yes.
Sending mixed signals, asking companies to “do as I say, not as I do” is an ineffective approach to moving the investor agenda forward on some of the key material and systemic ESG risks, such as climate. ShareAction’s report “Voting Matters” assessing global asset managers voting record relating to climate, ranked 57 asset managers across a sample of 65 shareholder resolutions linked to climate change issues. The report concluded “Six out of 10 of the worst performers have come out in support of the Taskforce for Climate-related Financial Disclosures (TCFD) and joined at least one investor engagement initiative on climate change, yet fail to vote in favor of resolutions on climate-related disclosures”. Furthermore, their analysis revealed that “a number of CA100+ investor signatories fail to support resolutions at CA100+ focus companies”.
With regulatory oversight requiring disclosure of how investors vote; scrutiny and assessment of how well words and actions align will follow. Voting activities that are seemingly out of sync with headline statements, corporate dialogues and investor mandates will be called into question, and there is no telling how far the impact will run.
This speaks to the need for investors to get involved and to exert proper oversight and due diligence to ensure they establish and communicate a consistent approach and process to engagement and voting, aligned with their strategy.
With this in mind, Sustainalytics launched its ESG Voting Policy Overlay to support a holistic approach to active ownership. The policy is designed to ensure that voting is consistent with ongoing engagement activities and broadly accepted ESG and sustainable development objectives. It is intended to work in tandem with traditional corporate governance policies, such as investors’ own, or proxy advisor house policy. It provides a deeper ESG lens with voting recommendations based on robust ESG principles, the UN Sustainable Development Goals (SDGs), ongoing corporate engagements and ESG trends with demonstrated momentum among investors. With our corporate dialogues, voting is used as part of the engagement toolbox in an escalation strategy for poor or non-responsive corporations, which also includes direct communication of vote intentions before or after an AGM.
Adding this policy to our active ownership services is intended to help investors become better stewards of capital; strengthening their commitment as responsible owners to achieve greater long-term value for their beneficiaries, investee companies and societies in which they operate.
If you are interested in knowing more about Sustainalytics’ ESG Voting Policy Overlay, please contact [email protected].
Sustainalytics’ Active Ownership Services enable investors to promote sustainability and demonstrate investor action as part of its fiduciary duty. Through our research and engagement services, we help hundreds of the world’s largest investors practice good stewardship by integrating ESG considerations in investment decisions and active ownership, all to the benefit of acting in the best long-term interest of clients’ beneficiaries.
 Jon Hale, Ph.D., CFA, Morningstar, “Sustainable Funds Continue to Rake in Assets During the Second Quarter ESG fund flows have already nearly matched last year’s record” https://www.morningstar.com/articles/994219/sustainable-funds-continue-to-rake-in-assets-during-the-second-quarter
 ShareAction, “Voting Matters: Are asset managers using their proxy votes for climate action?” https://shareaction.org/wp-content/uploads/2019/11/Voting-Matters.pdf