How to make ESG engagement effective. Peter Webster, CEO.

Transcription

1 How to make ESG engagement effective Peter Webster, CEO.

2 Things to talk about History and evolution of engagement Strategies for engagement Linking voting and activism Principles for Responsible Investment questionnaire Limits to engagement: when you aren t getting anywhere Conclusions: where next?

3 History and evolution First thing EIRIS did in 1983 Responsible Engagement Overlay at Friends Provident Seen then as an alternative to changing the portfolio E, S & G converge: Vedanta as a case and Bribery as a topic Now top end of Active Ownership sitting on a pile of votes Now seen as a potential input to investment decisions Or (at worst?) as a label for all communication or research

4 EIRIS s involvement Engagement service: 150 well chosen cases across 6 themes Pre-cooked, back office support for your engagement 35% success rate across months Voting service: now with Glass Lewis partnership 6 themes identify several hundred opportunities Regular stream of improvements Specific projects: Vedanta reports example Governance angle to break the log-jam Persistent process over multiple years Too late is some ways, but not too late to learn

5 Strategies for engagement Wide focus, small steps engagement Deep understanding, large commitment Collaborative or solo Public or private Well organised or slightly opportunistic

6 Why do it? To increase shareholder value To respond to stakeholder expectations upon us To respond to specific client mandates Because we are a PRI signatory As part of our own corporate responsibility strategy/brand As part of a product promise Other....? What drives your interest?

7 Doing the maths... If every year the top 1000 asset owners were to express a view to 60 large or mid cap stocks and engage in detail with half a dozen And the top 100 managers express a view to 600 large or mid cap stocks engage in detail with 60 Then the average top 3000 company will hear from 20 owners and talk to two of them hear from 20 top managers and talk to two of them How best to scale these activities?

8 Linking votes and activism Standard votes that catalyse discontent Filing shareholder resolutions Or negotiate away the suggestion that you might Calling for a CSR vote at the AGM Voting against annual report (or a proxy) if you are unhappy Election of directors If ESG factors matter in their role, how are they doing? Emerging debate about board composition As an escalation strategy around specific engagements A vote without an explanation is a wasted opportunity

9 PRI engagement questionnaires What are they looking for (scored elements)? Formal process to pick and prioritise engagements Defining objectives for your engagement Playing a role in the engagement (not leaving it to providers) Systematic link to investment process Tracking the number of engagements Comprehensive (multiple touch points) engagements Spread of E, S & G engagements Disclosure of engagements Success (unscored)

10 What do we need to be better at? Formal process to pick & prioritise and define objectives Tracking the number of engagements and the outcomes Linking outcomes with the investment process More depth (deeper engagement in individual cases) More breadth (communicating with more companies) Disclosing engagements more clearly to clients Increasing impact (in terms of successful outcomes) Discuss and pick your top three next steps

11 When stock specific engagement fails? Escalate Collaborate Move on Persist/wait Sell Integrate Explore materiality further Seek to change legislation or regulation

12 When will you reach different levels? Communicating ESG view to over 200 companies a year? 50 comprehensive engagements in a year? 100 comprehensive engagements in a year? Reporting on achievements in 50%+ cases? Clear link back to investment process? Clear about when to go for Policy engagement instead? Already, 2 years, 2-5 years, 5+ years, Unlikely/NA

13 Conclusions and future direction One of the great success stories of the last 30 years Vital to active ownership Stakeholder expectation growing Part of financial services licence to operate The focus on evidence based effectiveness is growing Clearer thinking is emerging about what works, when to collaborate and when and how to get help

14 Thank you for your attention!