Asset managers who exercise active ownership are moving the needle to strengthen corporate ESG policies and performance.
A new survey by Cerulli Associates has found active ownership is one of the fastest growing methods of responsible investing used by asset managers with nearly 72 per cent utilising it.
This number is up from 2017 when only 54 per cent of managers exercised active ownership as part of their ESG investment decision-making process.
Future Super’s chief executive Simon Sheikh told Investor Daily that it used active engagement where possibly with companies that could adapt.
“We find that being a shareholder in a business where the business can adapt to change means that lobbying the board and the investor relations team can be very successful,” he said.
However sometimes divestment was the only option, particularly among companies which were unable to change without changing their business model.
“There are some companies who are so deep in the pocket of their sector that no matter how much we engage them they are simply not going to change, their business models can't adapt to a clean energy future and therefore the only option is to divest,” said Mr Sheikh.
Mr Sheikh said a number of engagement tactics worked including voting activities and dialogue with management and shareholders.
Proxy voting was one of the most popular methods found by Cerulli with 90 per cent of asset managers utilising the method while 78 per cent also use dialogue with management to promote change.
Director of institutional research at Cerulli Michele Giuditta said that communication between investors and a company’s leadership is a fundamental part of active ownership.
“It gives asset managers the ability to explain specific ESG risks and opportunities and encourages actions that may preserve or improve the company’s performance and enhance shareholder value,” she said.
Leverage in stock ownership was also a popular method for publicly traded companies with Cerulli finding 40 per cent partake in shareholder resolutions to enable all shareholders to vote on the issue.
“These proposals facilitate formal communication between shareholders and management, calling for the company to take a specific action.
“While most of these proposals are nonbinding, an industry rule of thumb suggests that a vote of greater than 20 per cent sends a clear signal to management,” said Ms Giuditta.
Among ESG investors climate change remains at the heart of these actions with 94 per cent of survey participants citing climate risk as a key topic.
Workforce diversity, race ethnicity and gender are also top emphases of engagement priorities with close to half stating these are areas of focus for 2019.
Growing areas of engagement include clean water and water scarcity among 73 per cent of managers and issues related to the opioid addiction epidemic for 44 per cent of managers.