Continuous engagement is also important to Invesco Perpetual. Head of ESG, Cathrine De Coninck-Lopez explains that longterm investor pressure seems to have contributed to several oil and gas companies increasing their focus on becoming balanced energy companies.
“These integrated oil and gas companies highlight that they are well placed to increase exposure to new energies and are allocating capital investment towards these areas. “In the event that all responsible investors divested from these companies, they would likely face other shareholders that potentially would be less interested in the longterm sustainability of these companies,” she adds. “Divesting from integrated oil and gas can therefore be counter-productive to the goal of achieving the energy transition and two degrees of warming by 2050.”
Popular themes that investors discuss with the directors of its portfolio companies, according to LGIM, include board composition, alignment of pay, climate change risk and succession planning. Transparency on how management is improving the business also makes the list.
For Newton, executive pay is a hot topic in the discussions it holds with investors. “That is being driven by companies being burnt in the past,” Barron says, who also puts climate change, slavery and child labour on the list of investor concerns.
One of Newton’s engagement successes came at a Korean electric car battery maker. It discovered that the company was using child labour in its factories and used its position as a large shareholder to tackle the issue.
Other examples of investors working to change business practice includes Calvert, a responsible investor, which reached out to more than a dozen companies on climate and energy issues in the final three months of 2017. This resulted in filing two shareholder proposals on greenhouse gas emissions reductions. In addition, the firm continued speaking with a large steel company about energy management and greenhouse gas emissions.
Calvert is also participating in Climate Action 100, an initiative to engage more than 100 of the world’s largest corporate greenhouse gas emitters to curb emissions and improve governance.
But if discussions with management fail, the last resort for shareholders to facilitate change is through voting at the annual general meeting (AGM). It is proving a popular route to try and bring the change that shareholders believe their investee companies need.
Investment Association research shows that investor rebellions hit around 20% of listed companies in 2017.
One business affected this year was consumer goods group Unilever, which in May saw more than a third of its investors vote against the board’s pay packages. O’Neill does not expect that this will be the last rebellion that we see this year.
“These are issues, which are growing in prominence, where there is a greater profile attached to these resolutions. This can be something which is difficult for companies to deal with given the significant amount of negative press around their compensation packages,” O’Neill says. “That is something which is growing in prominence, absolutely.”