By James Bonner, independent sustainability consultant
In addition to the wider approaches to advance the consideration of sustainability issues through investment frameworks such as the Equator Principles and the UN’s Principles for Responsible Investment, there are also opportunities for individuals and groups to more directly influence the environmental, social and governance (ESG) related activities and impacts of specific organisations in which they hold investments. In particular, the process of active ownership - where investors become much more aware of, and participatory in shaping, the direction and strategy of the companies in which they are involved – is a process which fosters such influence.
Active ownership (which is, furthermore, central to the second principle of the UN PRI) generally involves the implementation of a range of actions and programs to enhance interaction between investors and management, from policy forming and strategy planning, to stimulating the monitoring and reporting of corporate performance in relation to sustainability impacts. Furthermore, investors can use their position as shareholders in companies to exercise their voting rights at general meetings and additionally raise shareholder resolutions to be voted on including proposals on company policies or procedures, normally pertaining to corporate governance and wider corporate responsibility issues. Ceres, a U.S. based advocacy group for investor and business leadership in sustainability, tracks shareholder resolutions filed by their investor network on sustainability issues pointing out that ‘resolutions are part of broader investor efforts encouraging companies to address the full range of environmental, social and governance issues’.
Significantly, Ceres have reported that resolutions addressing environmental and social matters are consistently gaining more than 30 or 40% of shareholder backing – an increasing trend which supports the notion that such issues are gaining wider, and more mainstream, support and attention. Furthermore, the paper ‘Shareholders press boards on social and environmental risks’, produced by Ernst & Young in 2011, backs up such trends, reporting an almost 40% growth in the number of environmental and social sustainability resolutions filed since 2000, a significant increase in average voting support for such filings and a prediction that half of all resolutions in its forthcoming ‘proxy season’ (the period in the year when many companies hold their shareholder meetings at which resolutions are consequently raised) would be related to such issues. The following table extracted from the report highlights these trends:
As the E&Y report concludes ‘shareholders are paying closer attention to environmental and social matters, believing them to bear closely upon the risk to which investee companies are exposed and, ultimately, upon the financial performance of those companies’and, as such, active ownership procedures of greater investor and management engagement, and compelling shareholder resolutions, are likely to increasingly put pressure on businesses to report and manage their wider sustainability impacts.