Trustees are increasingly focused on Environmental, Social, and Corporate Governance (ESG) factors, encouraged by various new regulations and member interest. Trustees mainly implement their ESG beliefs and policies though the investments they make and the investment managers they choose. Important areas for trustee attention are the voting and engagement activities of the investment managers they appoint.
Investment managers have significant influence over the companies in which they invest, and their actions affect corporate behaviour. Therefore, asset managers that vote and engage on behalf of investors can create a real-world impact. In addition, asset managers that work together and collaborate on important ESG issues can achieve even more.
Often the most powerful way investors can make real change is through a shareholder resolution. In this process a proposal is submitted by shareholders for a vote at the company's annual meeting. If enough shareholders agree to the proposal, the company will consider it. Shareholder resolutions cover a wide range of topics and are a useful way of ensuring management focus on important shareholder issues. Even if they are not successful, they are often a catalyst for change through being merely discussed.
A recent example is a climate change resolution at Credit Suisse. A group of large investors managing €2tn of assets co-filed a shareholder resolution asking for further disclosures on the bank’s climate strategy, and to set short and long-term targets to reduce exposure to fossil fuels. If Credit Suisse includes this proposal in its next Annual General Meeting (AGM), it will be the first its kind to be voted on at a Swiss company.
The resolution has been framed as way for the bank to manage climate change risk. This is important as Credit Suisse has been subject to a range of high-profile scandals, which have damaged its reputation for having robust risk management procedures. Scandals include:
- A $5.5bn loss from the collapse of Bill Hwang’s family office Archegos Capital (2021)
- $1.7bn loss as a result of the collapse of $10bn in supply chain finance funds linked to Greensill (2021)
- Its chairman Sir António Horta-Osório broke Covid-19 rules and stepped down after just eight months (2022)
- It became the first Swiss bank in the country’s history to answer criminal charges, with the opening of a case involving millions of euros in alleged laundered drug money (2022)
If the climate change resolution is voted for, it will not alter Credit Suisse’s reputation overnight. But it will help signal to investors that the firm is taking ESG seriously and its attitude to risk is changing.
Real world difference
Shareholder resolutions and engagements take time to reach success and have real impact. For example, after two years of engagement and a second shareholder resolution, in March 2022 HSBC announced new climate commitments to phase down its financing of fossil fuels to limit global temperature rise of 1.5°C as part of its Net Zero by 2050 goal and update its oil, gas and thermal coal policy by the end of 2022.
anks are highly significant to the capital markets, therefore, if they change their policies, there will be wider implications to many different companies resulting in a real-world difference.
The real benefits of shareholder engagement are often not immediate, so trustees should continue to encourage and support their asset managers to increase their Stewardship, as it can make a difference over time. If you would like to learn more about your asset managers’ voting and engagement practices, please speak with your Investment Consultant.