In parallel with a growing focus on ESG, active investor engagement has become an increasing point of focus. Through meetings, emails and proxy voting, investors are able to communicate sustainability best-practices to corporations– advocating for more climate-friendly solutions.
UK Investors and ESG Priorities
As part of the 2021 UK Responsible Investing Study (UKRIS), Research in Finance (RiF) have detailed the top environmental, social, and governance (ESG) concerns amongst both retail and institutional investors. These concerns are compiled from the responses of 210 intermediaries, of which 107 are investment advisors and 103 are discretionary fund managers. The UKRIS provides analysis of real-level take-up of RI among asset managers, general RI strategy among industry professionals, and the impact of ESG regulation and guidance on investor behaviour.
Top environmental concerns for institutional investors include climate change, carbon emissions, and pollution. 62% of investors cited climate change as the top environmental priority for investment decision making, followed by 40% and 36% for carbon emissions and pollution respectively.
Climate change has become a growing focus for many investors– becoming the top-ranked ESG issue among discretionary fund managers and investment advisors for the past two years. Jack Dominy, a research manager at RiF, emphasised that many investors are clearly recognising the link between environmental challenges and financial performance. “As data gathering and analysis techniques become more sophisticated and regulators continue to press companies to anticipate future environmental issues, it is likely that even more investors will place issues such as climate change and emissions at the forefront of their strategies.”
Engagement and Environmental Issues
Climate events are consistently highlighted as one of the greatest challenges of our time. Across geographies, scientists have analysed the large-scale damages caused by human action on the earth’s climate. With this global environmental shift, there has been greater pressure from a variety of stakeholders– from consumers to investors– on businesses to commit to actionable change. One of the means by which investors are able to impact corporations is through direct engagement. Recording and analysing engagements with corporates can be made increasingly standardised and efficient through the Maanch Engagement Tracker– an online platform for investors to manage stewardship with their investee companies on an efficient and collaborative basis.
As stewards for climate change, emission reduction, and pollution reduction, investors are uniquely positioned to accelerate positive change in the financial and corporate ecosystem. Through engagements, investors are able to build a greater understanding of a company’s approach to climate change and emission and pollution reduction, and communicate their own values. UK-based financial consultancy Redington’s 2020 Responsible Investment Survey revealed that 61% of 104 global asset managers interviewed had engaged with company leadership over climate-related issues.
Through engagement, investors are able to represent climate interests and push their portfolios to become more climate-integrated. By noting all relevant interactions on the Maanch Engagement Tracker, investors can use the ET to efficiently integrate climate interests across stakeholders. Engagements can involve upholding net-zero commitments through conversation, pushing for emissions reduction through proxy voting or mandating increased disclosure through letters. BlackRock Investment Stewardship (BIS) has engaged with their clients regarding environmental disclosure. BIS wrote to clients in early 2020 to flag their commitment to climate-integrated portfolios. In 2019, they asked all companies to consider reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD) to increase transparency and greater accountability. This request was elevated to an explicit request in the following year. Through active engagement, in this case suggesting or mandating greater disclosure, investors are able to have a direct impact on the climate-related risks of a company and create larger sustainable change.
Although there remains room for increased engagement in the industry, climate change, carbon emissions, and pollution are now more in focus than ever before– strengthening the push towards climate-protection in the corporate world. Without the application of smarter technology, active engagement will remain constrained by the time and resources of investors. Maanch’s Engagement Tracker– a product for asset managers– allows for standardised and efficient data input and automatically generates impact insights. With the ET, understanding the true impact of engaging on climate-related issues becomes increasingly efficient.
If you would like to know more about Maanch’s Engagement Tracker, or are an investment professional interested in attending our upcoming Effective Engagement Roundtable event, please get in touch with Heer at firstname.lastname@example.org.
Blog by Maanch team member Heer Baxi.