The winter issue of Listed, The Canadian Magazine for Listed Companies, features an article by Milla Craig, principal of Millani, a consulting firm specializing in sustainable investing industry analysis for asset owners, asset managers and publicly listed companies. The article is titled “New rules of engagement” and speaks to the continued growth in sustainable investing, and how this growth is changing the dynamic of company-shareholder relations.
The article draws you in with a call-out box at the top, in bright red letters: “Nearly one out of every eight dollars under professional management in the U.S. is now managed according to socially responsible criteria. And North America is low compared with much of the world.” Take a minute and let that statistic sink in. One out of every eight dollars. That’s astounding, considering not only the amount of money under professional management in the U.S., but that socially responsible investing is still in its infancy.
Craig is quick to point out that shareholders around the world are issuing a call to action: engage with us and be transparent, specifically around ESG issues. There has been a significant increase in the amount of shareholder resolutions issued on this topic, special meetings called, proxy contests held and probing questions asked. But Craig poses her own question: is it activism? Or is it investors taking responsibility for stewardship on behalf of their beneficiaries?
Some questions keep repeating: do we pay attention to our stakeholders? Should we give our time and effort to answer their requests? Craig says there is little choice in this matter. Assessing and mitigating risk by integrating ESG factors into investment analysis and decision-making is not an option anymore. The aforementioned call-out box is an interesting example from the November 2010 SIF Report on Socially Responsible Investing Trends in the U.S. She also cites the progress the UNPRI has made (as highlighted in our previous post).
Overall the call to action is driven by the intense need for more transparency, especially around managing risk as it relates to ESG issues. It’s estimated that 75% of a corporation’s stock valuation is intangible value; changes in this value cause stock price fluctuation. Therefore, shareholder requests for ESG disclosure and transparency are being driven by their need to better understand whether a corporation’s current market value is an accurate representation of its long-term value.
Craig concludes her article with 10 things a public issuer can do to engage with shareholders before proxy voting is necessary. Do you agree with these 10 things?
Craig’s article cited some intriguing statistics on socially responsible investing and the increased pressure public companies face regarding disclosing ESG data. Though there has been a dramatic rise in shareholder resolutions and a loud call to action, it seems there is still a knowledge gap between the companies who ‘get it’ and the companies who don’t. Where is the disconnect, and how do we help them make the connections? Discuss!
To read the full article please click here.