It’s not just about money
INVESTORS: ‘HOW’S OUR MONEY MADE’
Those who recycle, buy organic and support charities likely want asset managers that consider ESG.
In July, Burberry found itself in a public relations storm. Its annual report revealed it had burned £28 million (R528 million) worth of unwanted products in a year and disposed of stock worth over £90 million (R1.7 billion) in five years, to protect its brand’s value.
In high-end fashion, stock’s often burned to prevent it from being stolen or sold at large discount.
The resulting outcry, however, caused a re-think. In October, it said it would no longer destroy unsaleable products, in a bid to become more sustainable.
This is becoming increasingly commonplace. Companies are under growing pressure to show their businesses aren’t just profitable, but socially and environmentally responsible.
Investments are no different
Consumers want fund managers that align with their values. “More and more investors are caring not only about how much money they make, but how companies are making that money for them,” says Hortense Bioy at Morningstar.
An individual who recycles, buys organic food and regularly contributes to charity is also likely to want to invest with a company that takes environmental, social and governance (ESG) factors into account. Asset managers are reacting. For example, many local firms are signatories to the UN-supported Principles for Responsible Investment.
But investors are increasingly wanting to know what that means in practice. How do fund managers ensure they’re investing in sustainable companies; how do they respond when a business they’re invested in behaves contrary to ESG principles?
Proxy voting
One area where fund managers can show they’re serious is by how they vote at company AGMs.
““In terms of proxy voting, they should be more transparent about how they use the tools at their disposal to make a difference,” says Bioy.
This transparency shows investors how firms approach their responsibilities and allows investors to hold their fund managers to account if they believe they’re not acting in their best interests.
Bioy believes disclosures should include detail about where fund managers have engaged on ESG issues.
“When asset managers speak to the companies [they’re invested in] … it would be good to know what progress they made. Investors should know what impact they are having, because this is about protecting their long-term wealth.”
What about passive?
“Passive managers are increasingly taking an active role in monitoring companies,” says Bioy. “They realise that, with the rise of passive, the responsibility that they have has grown.”
Firms offering index-tracking products are increasingly taking their voting responsibilities seriously, and building bigger teams to manage engagement.
In fact, there’s growing recognition among index fund managers that it’s important to find ways of having a positive influence.