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Elevating Responsible Investment Standards

By Team Maanch  |  
October 2, 2023  |  
10 minutes read

A conversation with Simon Rawson

Discover ShareAction’s strategy for promoting responsible investment standards as Simon Rawson, Director of Corporate Engagement and Deputy Chief Executive, delves into successful collaborations, outcome-focused engagements, and much more.

1. Tell us about your role at ShareAction, and how your organisation aims to elevate standards in the financial sector.

In my role at ShareAction, I oversee efforts aimed at enhancing the investment system’s impact on the planet and its people. Our organisation operates in three primary domains. Firstly, we focus on holding the financial sector accountable. This involves assessing the responsible investment practices of asset managers, banks, and insurers through benchmarks. We publish the benchmarks and engage with these entities to elevate responsible investment standards.

Secondly, we engage in advocating for public policy changes to shape a system that mandates responsible investment practices for all investors. 

Lastly, I lead the corporate engagement or campaigns division. This involves collaborative efforts with investors to strengthen stewardship, a powerful agent of change. We convene groups of asset owners and managers to jointly address specific issues like decarbonisation and social inequalities. Our goal is to foster effective collaborations that drive positive change in the real economy and encourage participating investors to utilise their full range of stewardship tools to their maximum potential.

2. Share an instance of a collaboration that you consider successful and resulted in tangible outcomes.

A noteworthy collaboration we’ve engaged in focuses on combating low pay in the UK. Partnering with the Living Wage Foundation and the Good Work Coalition, we’ve worked for over a decade to encourage large UK companies to become accredited living wage employers. This accreditation ensures workers receive a genuine living wage, calculated independently to cover basic living costs. While our efforts haven’t solely driven this change, we’ve significantly contributed to 55 out of the FTSE 100 companies now being accredited living wage employers, up from just 2 when we started.

One remarkable success involved addressing low pay within the retail sector. We filed the UK’s first shareholder proposal at a retailer, urging Sainsbury’s to become an accredited living wage employer. Through negotiations, the company raised wages for nearly 20,000 workers to the real living wage. This tangible example showcases how combatting low pay positively impacts workers’ lives, reduces inequality, and contributes to a fairer society. Our role in increasing the number of FTSE 100 employers paying genuine living wages is a source of pride for our contribution to this progress.

3. How do you recommend ensuring an outcome-based engagement? 

When it comes to measuring engagement success, it’s challenging to directly attribute impact. However, demonstrating contribution is possible. Begin by setting clear engagement objectives and defining the desired changes over a specific timeline. Effective engagement involves using appropriate tools, escalation tactics, and consequences for non-success. For instance, in our benchmarking of asset managers, we’ve noted progress in incorporating escalation steps but lacking consequences for unsuccessful engagement.

The importance of transparency in reporting cannot be overstated. Highlight achieved impacts and attempt to identify attributions using qualitative methods like interviews. In our above mentioned case, interviews revealed that our engagement significantly influenced some companies to adopt living wage practices.

To sum up, establish objectives, define timelines and consequences, report transparently on outcomes, and use qualitative methods to showcase contributions where feasible.

4. How does ShareAction build relationships and engage with institutional investors to drive corporate change? What effective strategies are employed to influence their decisions?

ShareAction’s engagement strategy hinges on perseverance and building long-standing relationships, which are rooted in trust. Over my three and a half years here, I’ve built upon the 16-year legacy of relationship-building. While we have some established relationships, we continue to forge new ones. We use three concurrent tactics: financial accountability, collaborative engagement, and policy advocacy. This approach positions us as a supportive yet candid “critical friend” to the industry.

When we benchmark asset managers, their 90% or more response rate to our comprehensive surveys underscores the value they see in our feedback. This feedback fosters honest and sometimes challenging conversations that contribute to positive change. While relationships may experience tension at times, we’ve found that leaning into such moments often leads to favourable outcomes. Witnessing the progress of asset managers, such as one major US player moving up 34 spots in our latest benchmark, demonstrates the impact of these efforts

In essence, nurturing relationships takes time and can involve tension, but by maintaining a critical yet supportive approach, we cultivate enduring partnerships for positive long-term impact.

5. What key challenges do you face, and how does ShareAction tackle them to bring about significant change?

At ShareAction, our core values of independence, courage, and persistence guide us through challenges. When we publish benchmarks, there are difficult conversations with organisations at the lower end. Our senior team invests time in explaining these benchmarks, and fostering constructive dialogue. While change might take time, these conversations maintain productive relationships.

In collaborative engagements, tensions arise due to differing views on responsible stewardship. We challenge the status quo by pushing for more ambitious goals. For instance, in decarbonisation, pace matters; in population health campaigns, strategies vary. Some investors align, while others don’t. We celebrate leaders who join us and use tools like shareholder proposals to encourage change across the shareholder base.

Balancing diverse perspectives, working with smaller groups, showcasing leadership, and staying true to our values help us navigate challenges and drive meaningful change.

6.  In the last 5-7 years, how has investor engagement evolved in the industry? Highlight key trends and changes noticed.

Over the past 5-7 years, engagement with investors has evolved significantly. While the concept of responsible investment has gained momentum, there’s now a critical focus on its standards. The growth of ESG strategies and stewardship activities is positive, but it has also brought concerns about greenwashing – inflated or unsubstantiated claims about sustainability.

Terms like “engagement washing” have emerged, highlighting the challenge of superficial engagements. While there’s valuable engagement happening, a substantial portion remains at the “tea and biscuits” level, centred on traditional governance issues. 

Reflecting on our asset manager stewardship tools benchmark, some interesting trends emerge. Notably, around 70% of benchmarked asset managers claim engagement through meetings, and 60% report writing letters to companies. However, when considering more substantial engagement tactics, such as filing shareholder proposals, the number drops to only 20%. Similarly, just 25% have posed questions at AGMs, and merely 45% have voted against management decisions. This data underscores the need to amplify impactful stewardship methods beyond superficial engagement practices.

Overall, there’s a need to move beyond tick-box exercise engagement and embrace more effective stewardship tools to drive substantial change. While good practices and initiatives exist, there’s room for growth in impactful engagement practices.

7. I noticed the release of your “Rise” initiative. Could you provide more insight into its details and goals?

The challenge is defining responsible investment, and we’ve launched our “Rise” initiative to provoke conversation on this topic. Our definition emphasises transparency and embedding responsibility throughout the investment process, encompassing investment decisions, stewardship, and disinvestment considerations.

We address both positive and negative impacts on people and the planet, treating them as seriously as financial risk and return. While acknowledging trade-offs, we encourage investors to be transparent about their choices and the impacts they’re comfortable with. We’ve outlined minimum standards on our website, but more importantly, we’re challenging the industry to comprehensively manage impacts and risks.

Our “Rise” initiative stands for Responsible Investment Standards and Expectations. We’ve started by providing detailed guidance on net zero targets for asset managers, aiming to address inconsistencies and insufficiencies in the industry’s approach toward achieving net zero by 2050.

8. What actions have been taken to improve voting practices for greater transparency and accountability?

Voting is an incredibly important part of stewardship and yet too many asset managers don’t use the votes they have to support critical environmental and social proposals at company AGMs—some don’t even vote all their shares. After each AGM season, we collect data from the world’s largest asset managers and publish analysis of voting trends. In recent years, the gap has widened between European managers, who supported 81% of critical ESG resolutions in 2022, and US managers, who supported just 43% of the same votes. The anti-ESG political agenda in the US suggests this trend may continue. We want to see asset managers strengthen voting policies to explicitly cover material ESG themes and take into account impacts on people and the planet, commit to voting all their holdings, and improve transparency about policies, voting records and voting rationales in a timely manner. In our view managers should also support shareholder resolutions that help resolve environmental and social problems by default and provide a public explanation whenever this commitment is not met.

9. Share instances on how ShareAction engages with regulators to drive regulatory changes that support responsible investment practices?

ShareAction advocates for a regulatory framework that embeds responsible practice in the financial system, and we work closely with regulators in the UK and EU on specific elements of that, especially when it comes to investor stewardship. We were an early supporter of the Stewardship Code and have worked with the Financial Reporting Council on how the Code can be more ambitious, with our ultimate ambition being to embed stewardship as an integral part of investors’ duties. We also engage closely with the Financial Conduct Authority to drive higher requirements for sustainability disclosures, including on the Sustainability Disclosure Requirements consultation earlier this year, and we work with EIOPA and ESMA in the EU to encourage higher stewardship standards there. In all our regulator relationships, our priority is to enshrine responsible investment throughout the system and ensure that investors are held to account for their impacts on people and the planet.

10. What are ShareAction’s priorities and goals for the future in shaping the asset management industry and driving positive change in the years to come?

Looking ahead, we’re far from finished in our endeavours. Our priority remains elevating stewardship standards. However, our scope needs to expand beyond listed equity, considering the vast capital in the bond and private equity markets. In the next three years, we plan to extend our focus to bondholder stewardship and encouraging responsible investment principles among general partners in private equity.

Yet, challenges exist. The anti-ESG movement in the US has cast shadows globally, impacting the industry and prompting caution, particularly given the nature of large asset managers with US ties. As we expand into other asset classes, we’ll maintain leadership in Europe to foster progress while navigating the current challenging US political climate. While optimism exists for the potential of responsible investment, we must address the realities of this political turbulence, which has emerged as a complex challenge originating from specific interests and partisan politics in the US.

About Maanch Engagement Tracker

Maanch Engagement Tracker is a cloud-based solution to track, report and analyse all portfolio engagements for improved collaboration, transparency and compliance with global regulations.

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