Accusations of greenwashing and broader claims that ESG is too imprecise a term to be useful to advisers and their clients continue to dog the sustainable investment eco-system.
But Matt Crossman, stewardship director at Rathbones, says that a combination of greater public awareness of the issues, and greater clarity from regulators and policymakers, means “companies now know you have to prove the actual impact of what you are doing is positive.
"The Financial Reporting Council is framing things in a way that is asking companies ‘what did you achieve in this sustainability area this year?’, and that means we are much more confident now when we are interacting with companies [as] we know what they are doing.”
Sandra Crowl, stewardship director at Carmignac, says a key way to understand if a company is serious about being more sustainable is to ask them to identify the negative impacts that may be occurring as a result of their business activity.
"And if they can identify those," Crowl says, "what specific targets do they have to show they are serious about addressing those impacts?
"We are starting to see attitudes changing among company management, many of those are asking us [if] they can have another meeting with us a few months later as they want to do more.”
Duncan Goodwin, who runs the Premier Miton Global Sustainable Growth fund, says the traditional way many fund houses dealt with engagement was to outsource it to third-party agencies, but he says this is changing.
“Just as with identifying unrealised growth or value, we look to identify companies where their contribution to the sustainable development goals is under appreciated by the market.
"Engagement can often consist of highlighting the gaps in reporting, both in terms of alignment of revenues with the [sustainable development goals] as well as more traditional ESG metrics. We have yet to find a tool as effective as a company meeting or call to identify both risks and opportunities at the company level.”
Voting
Of course some companies need to be engaged with more than others, and the tools ESG fund managers have at their disposal to coerce companies to act include voting against management at annual general meetings.
Crossman says that while the conversations he has with companies around climate-related issues “are quite advanced”, in other areas the conversations are at an earlier stage. "One area I would highlight in that regard is gender diversity on boards.
"On any issue where we feel companies are not doing well enough, we will start with conversations, but would then move on to shareholder resolutions at the company’s annual general meeting, and after that, to voting against the directors.
"To use the specific example of the gender diversity issue, we would vote against the chair of the nominations committee, as it’s their responsibility. And if action doesn’t happen after that, then we would look to vote against the directors on the board of the company. Of course we would tell them in writing why we are voting a certain way.”
