THIS YEAR’s stunning defeat of Exxon Mobil by Engine No.1, a tiny activist fund that resulted in three new directors on the board of one of the world’s largest fossil fuel companies, is the most public example of the rise of a new type of shareholder engagement.
It is expected to accelerate a dawning realisation among investors that when it comes to public equity markets, there are stronger avenues for change than traditional methods of screening and divesting companies.
If every climate-minded investor sold their coal shares, that would leave control of those companies in the hands of the least climate-minded owners.Susheela Peres da Costa
“But while there are good reasons for an investor to not want to be exposed to fossil fuel assets, it’s another thing altogether to assume a company cares who owns its shares.
“It’s worse than having no impact because it makes for a false sense of security.
“Even if every climate-minded investor sold their coal shares, that would leave control of those companies in the hands of the least climate-minded owners.”
Regnan’s work suggests investors who want to make a difference in the world have far more potent weapons at their disposal than merely selling their shares.
Stewardship initiatives, in which institutions use their investor influence for change, are proving to be a powerful lever.
Investor stewardship can also be successful putting resolutions to boards and reigning in unhelpful corporate influence on government policy.
Advocacy is an area where coalitions of smaller investors can have a real effect, directly asking regulators, industry bodies and governments for change.
And investing in disruption to drive change is also an effective strategy.
But what about small investors without access to these avenues?
“Figure out where your power really is,” says Peres da Costa. “Unless you are an enormous institution, big enough to move market prices, you have much more power as a consumer – what products and services you buy, who from, and whether you are vocal about why.
“So, you say ‘I don’t want my shares ever to be voted in favour of a director who is trying to entrench fossil fuels in the economy’. And you check which financial service providers commit to that before you entrust them with your money.
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Peres da Costa points out that this simplifies many of the challenges associated with trying to invest responsibly, by focussing the discussion on what kind of impact investors want to have.
“It’s too easy to get caught up in details when you focus on divestment, or ‘screening’,” Peres da Costa says.
“For instance, should divestment focus on companies that produce fossil fuels? Or firms that burn them, releasing global warming gases into the atmosphere? Are firms that support the fossil fuel supply chain in or out? Coal ports? Gas pipelines? Roadside retailers of petrol?
“Burning fossil fuels is a major part of industries as diverse as energy generation, steelmaking and aviation. Many of the largest organisations involved in fossil fuels are governments; are we divesting airlines and countries too?
“Are all carbon emissions equal? Is coal burnt to make steel for wind turbines worse than lower-carbon oil to air-freight fresh tropical fruit to temperate markets?
“These are often interesting debate topics, but dodge the deeper question most clients are interested in addressing: What does my money do?”
Read more about what investors can do to drive change at The Divestment Dilemma.
Susheela is Regnan’s head of advisory. She has more than 15 years of domestic and international experience advising institutional investors on responsible investment.
As Head of Advisory, she has assisted small foundations through to the world’s largest institutions, including a successful 18-month project in Switzerland responsible investment leadership for a global full-service bank and strategic advice to the UN-backed Principles for Responsible Investment on upgrading stewardship.
Susheela chairs the Responsible Investment Association of Australasia and is special adviser to the co-chair of the Australian Sustainable Finance Initiative.
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems, while the Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change.
For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at email@example.com.
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Regnan Global Equity Impact Solutions Fund
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