Investors discuss future of ESG engagement at Sustainable Finance Forum

Jul 31, 2019
Frustration and unity around ESG initiatives expressed at invitation-only ESG event

In mid-June, the University of Oxford and the Rothschild Foundation sponsored the 8th Sustainable Finance Forum, an invitation-only, limited attendance, event.

The forum aimed to identify ESG-related initiatives, be a networking and idea-sharing platform, showcase new initiatives and technologies to advance environmentalism, and discuss real issues surrounding issuer engagement. The Chatham House rule applied so key takeaways are highlighted without attribution.

A large UK pension manager gave a frank and detailed description of engagement with oil and gas companies, relating to enhanced disclosure and increased action on climate initiatives, particularly the 2C degree scenario. He emphasized the need for more ‘credible’ institutional leaders to ‘step up’ regarding climate issues, and suggested that the media could be used to exert pressure if needed. The pension fund’s next emphasis is on ‘active bias and culture change’, company by company.

An SRI fund manager pointed out that not all want to engage, citing a recent UKSIF survey of fund managers that have no engagement policy and/or haven’t set engagement objectives. Some managers cited fear of a short-term share price drop as a reason to avoid engagement. This led to a healthy debate regarding divestiture as a strategy, with mixed opinions. Some managers stressed that their funds wouldn’t allow for divestiture without significant explanation to an oversight committee; others used fiduciary tools such as board ‘against’ votes or accumulating larger positions to engage more proactively.

Regarding stewardship challenges, investors focused on political spending disclosure. One fund manager was frustrated with companies that didn’t ‘walk the walk’, citing conflicting disclosure in a CSR report and SEC filings. Several managers said that if they see ‘discrepancies among disclosures, it casts a pall over the company.’

The use of private equity in advancing ESG initiatives was debated, calling into question the practice vs theory of supporting ESG, including challenging relationships between general and limited partners. One bond investor indicated that challenges in bond performance likely result from ‘a reputational or governance risk’. But he urged bond and equity investors to work together, citing ‘full-spectrum engagement’ as the key to advancing ESG initiatives.

Discussions regarding new technologies and approaches were diverse and fascinating. Companies such as Hitachi are creating platforms to measure engagement, while others are taking pension management direct to individuals online or leveraging game theory to highlight specific areas of climate change (E3G, for example).

The topic of virtual annual shareholder meetings was hotly debated. One panelist was convinced it was a method for companies to avoid meeting with investors, emphasizing that ‘we want to see the whites of their eyes’.

Regarding engagement outcomes, a corporate board member outlined the importance of a board’s role in prioritizing ESG initiatives. Another panelist said he uses the World Benchmarking Alliance, which ranks companies on ESG. Yet another panelist suggested the stock exchanges could enforce behavior, starting with the UN’s Sustainable Stock Exchanges Initiative. All panelists agreed the biggest engagement challenge is getting companies and investors ‘to just speak to each other.’

Overall, the forum presented an engaging and informative two days filled with varying opinions and approaches, all united in the belief that ESG initiatives are important – and here to stay.

 

Sally Curley is CEO of CGIR

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