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Investors swaying corporate ESG through unwavering activism

By Paul Hemsley
 — 1 minute read

There’s a big push from investors to wield more control over how companies operate.

Historically, there’s been a collective resistance from companies that feel indignant when their stakeholders are breathing down their necks.

But as times have changed, so have attitudes, which have evolved to become more welcoming and accommodating, with social and environmental activism emerging as one key area where corporate stewards and their investors have found common ground.

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That’s especially true when it comes to ESG strategies, with firms like Magellan Financial Group (MFG) propagating greater investor involvement in decisions pertaining to social and environmental issues.

According to portfolio manager of the MFG Core ESG fund, Elisa Di Marco, it’s all about risk management and ensuring risky activities are effectively mitigated if they are potentially harmful.

On the environmental front, Ms Di Marco explained that if a company fine-tunes its compliance with environmental demands, then its value to customers will increase, which will in turn be reflected in the investors’ returns.

In an InvestorDaily podcast, Ms Di Marco described this investor behaviour as “active management”, where an “active manager” identifies risks and assesses how a company is managing them.

“The purpose of that risk identification is to help us with our portfolio construction… also to provide the information on how we engage with companies on these material risks,” Ms Di Marco said.

Under the guise of “engagement”, Ms Di Marco was resolute in the push for investors to drive corporate change, effectively moulding companies into more environmentally compliant crusaders who may act as a beacon of guidance for other companies looking to accumulate their green points.

But this change isn’t always easy. According to Ms Di Marco, achieving this “active collaboration” can take many years. In fact, she noted, stubborn company managers who aren’t likely to immediately adopt guidance from a relative outsider are very common. 

“That's not how companies operate. They take feedback on board. They think about it versus their strategy,” Ms Di Marco said.

So instead, she suggested a strategy that’s basically an exercise in repetition that she calls “constant engagement” – in other words, pestering the company into ESG compliance. It may be crude, but according to Ms Di Marco, it’s a winning formula.

But it doesn’t stop at environmental issues.

Ms Di Marco also has companies’ diversity quotas under intense scrutiny, an area which she said, many companies are quietly pecking at.

Ultimately, it comes back to “engagement”, which Ms Di Marco feels is a core element in driving companies to evolve from traditional thinking to more inclusive, socially engaged entities.  

Investors swaying corporate ESG through unwavering activism

There’s a big push from investors to wield more control over how companies operate.

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