Given that we saw record outflows from sustainable funds in the first quarter, has ESG as an investment strategy peaked?
The approach we take at Railpen to sustainable ownership is very much around financial materiality. We think about the E, S and G issues that are most likely to matter to the outcomes for members.
From our perspective, the case for incorporating and acting upon financial material ESG issues remains as strong today as it ever has been.
So we are continuing with our sustainable ownership approach, which includes, because I head up the investment stewardship work here, using all the ownership tools at our disposal to try to achieve impact.
So it is onwards and upwards at Railpen, but is that what you are seeing among your peers?
We work closely with other asset owners. Asset owners as a group have a privileged role in this debate, because we are the only financial actors whose needs are most closely aligned with the needs of our beneficiaries.
The asset-owner viewpoint on the importance of ESG and stewardship remains as important as ever.
How important is the geopolitical picture for Railpen when it comes to ESG?
We will continue to undertake stewardship on material ESG issues, whilst also paying careful attention to the variances and political developments worldwide.
We always have to think about the regulatory frameworks of the countries where our portfolio companies are situated. We pay careful attention to the regulatory changes that are happening, not just in the UK, but in the EU and the US as well.
We work in alignment with those regulatory frameworks and try to ensure that we do whatever we can to make the best use of our stewardship tools.
What are the big issues for Railpen this AGM season?
There are a few things I would highlight. The first is that we are continuing to see activity from investors on shareholder rights and on trying to emphasise the importance of good corporate governance.
We saw in the last AGM season increased shareholder support for resolutions that were on governance topics, and that includes things like one share, one vote.
At Railpen, we updated our global voting policy lines for 2025 to make a number of changes in the Shareholder Act space. For instance, we have tighter sanctions for companies seeking to extend what we call officer exculpation, which will have negative consequences for those officers’ duties to shareholders. In fact, we have already begun implementing that voting line at some of the affected companies.
One of the other hot topics of debate is the potential shift to more virtual-only AGMs or closed-door AGMs.
The AGM is a centerpiece of the annual issuer investor engagement cycle. Our preference at Railpen is for hybrid AGMs, because you can allow investors based elsewhere to participate virtually, while supporting that in-person interaction, which is fundamental for a lively and live conversation between senior company executives, board members and shareholders.
What other trends are you seeing emerge in this AGM season?
We are continuing to see investors, not just Railpen, use AGMs to make public statements on issues. That is, and will remain, an important tool for raising awareness with the company of an investor’s thoughts on a particular issue.
In fact, the Investor Coalition for Equal Votes, of which Railpen is chair and a co-founder, recently asked, or sought to ask, two questions at the Citigroup and Wells Fargo AGMs to raise awareness of our views on unequal voting rights and on their roles as trusted advisers to pre-IPO companies, including on whether or not they should proceed with dual-class share structures.
We did that to try to get a meeting with these companies as well, because engaging with investment banks is an important plank of our coalition’s engagement program.
Are corporate boardrooms listening to Railpen and their other shareholders?
We are having good engagement with senior company executives and with boards on a variety of issues. It is incumbent upon shareholders to ensure that they have the evidence base for the financial materiality of the topics that they are seeking to speak to companies about.
That is one of the reasons why Railpen produces a significant body of research on things like dual-class share structures, cybersecurity or audit to show companies evidence that improving their behavior should lead to better risk-adjusted returns.
Some of the coalitions designed to unify investor voices are losing their members. Is that a concern?
On the flipside, some coalitions have been growing their membership. For instance, the investor Coalition for Equal Votes started out in 2022 at $1.3trn (£984bn) of assets under management. It is now around $4.5trn (£3.4trn). That is a large amount of growth in a relatively short space of time.
I would encourage investors to continue to co-ordinate, collaborate and campaign, because it is important, particularly when you are dealing with big picture system-wide issues, that the investor community speaks with one voice. Coalitions, like the Investor Coalition for Equal Votes, are a good way to channel that voice.
If the regulator drew your name out of a hat and said we will implement any piece of legislation you wish, what would you ask for?
Bring back our long-standing shareholder rights that were lost and diluted when the UK listings rules were overhauled. Those corporate governance standards, those shareholder protections were fundamental to ensuring that the UK had this USP of the world’s quality market. It was a key differentiator.
When it comes to stewardship, what do you expect to see during the rest of this year?
I expect to see an increased focus on the G of ESG. For a long time it has been the poor cousin in the ESG world, but good governance underlies everything else.
You need to invest in companies that are well run, that have the right people leading the business with the right expertise, and who are supported by robust systems and processes in order for those companies to manage any risk and opportunity that comes their way.
We will also see increasing activity from investors in the policy sphere. As more investors, like Railpen, call ourselves universal owners of assets and increasingly act upon system-wide ESG risks, like climate change, biodiversity or shareholder rights, there is an increasing recognition that public policy should be one of the stewardship tools you deploy to achieve that system-wide change.
That is why Railpen has for the last five years dedicated significant stewardship resource to influencing policymakers. For instance, leading and co-ordinating the asset owner response to the UK listings rules [overhaul] or speaking to the SEC about improvements to their cybersecurity disclosure.
Public policy advocacy can be a vital tool if wielded effectively. I’m hoping to see more investors doing that.
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