Investor collaborations have long been an accepted part of responsible ownership and involve investors coming together to encourage companies to take action on their environmental, social and governance (ESG) practices.
The rationale is that investors can amplify their voice and add weight to their argument by working in unison with fellow shareholders. A coalition representing billions of pounds in assets usually commands greater attention than a single investor.
At a time when some question their future, I’m exploring the role of investor collaborations and considering the value of this important stewardship tool.
The case for collaboration
When I first joined the industry, I was surprised at the level of cooperation between investments firms on social and environmental issues. While investors are rightly prohibited from collaborating in ways that distort markets or influence share prices, collaboration is accepted practice and has become an established feature of modern stewardship.
However, collaboration is not merely a values exercise. It can provide access to better data, improve understanding of emerging risks and increase the likelihood of corporate action by presenting a unified shareholder voice.
Highlighting performance
Some initiatives are based on encouraging corporate transparency. One of the first formal investor collaborations was the Carbon Disclosure Project (CDP), established over 20 years ago.
Investors were involved from the outset, encouraging companies to complete a survey on carbon data at a time when corporate disclosure was less common and lacked standardisation.
The ability to compare company carbon datasets on a like-for-like basis was a huge benefit for many investors. In the intervening years, regulation mandating corporate environmental reporting has been introduced in many markets, but the cross-border comparability of company data, irrespective of listing location, remains appealing.
CDP now has over 20 years’ worth of corporate environmental data from thousands of companies, making it the “largest primary environmental dataset in the world”.
This is so important for investors, as consistent datasets can help identify risks, compare performance across sectors and geographies, and support more informed investment decisions.
There are other collaborative programmes, like the Workforce Disclosure Initiative and the AI Corporate Disclosure Initiative, that take a similar approach and have a wealth of data that, with the help of AI-enabled data analytics, could deliver new insights on links between, for example, workforce management and corporate performance.
Facilitating in-depth engagement
CDP and others like the Access to Medicines Index and the Corporate Human Rights Benchmark also score or rank corporate submissions to help companies and investors alike understand areas of strength and underperformance.
This analysis can inform in-depth engagement between shareholders and company management on the areas highlighted for improvement.
Many investor groupings come together to encourage specific companies to take action on specific issues. ShareAction in the UK and the Interfaith Centre for Corporate Responsibility (ICCR) in the US are two hubs that co-ordinate thematic and company-specific engagement.
Through ICCR, for example, we have supported and led engagements on a range of topics, from supply chain working conditions to diversity and inclusion. These collaborations allow investors to pool expertise, share intelligence and present a more unified message to company boards.
They can also lead to tangible outcomes by helping to improve disclosures, strengthen policies, enhance supply chain oversight and deliver greater transparency on workforce practices.
Investors also choose to initiate engagements themselves: the Local Authority Pension Fund Forum and CCLA, for example, co-ordinate an annual investor letter calling for FTSE 100 companies to put their climate transition plans to regular shareholder vote.
These engagements enable investors to collaborate in a new way on issues that are most material to their holdings and of most concern to their client base.
On a human level, they also foster a sense of community between stewardship professionals and help to generate new ideas and renew enthusiasm, which is particularly useful when contacting hard-to-reach companies.
What’s next for collaborative engagement?
Media articles over the past 12 months have highlighted the decline of investor involvement in collaborative engagements, or at least in investor willingness to affiliate publicly with these initiatives.
In some Western markets, corporate and political enthusiasm for addressing social and environmental issues has been waning for some time. At the time of writing, consultations are underway in the US to pare back mandated corporate sustainability reporting.
Against this backdrop, investor collaborations have an important role to play. Investors still require high-quality, comparable data. Companies still face material environmental and social risks. Clients still expect stewardship to be exercised on their behalf.
The number of investors may have declined, but they still represent significant assets and, moreover, remain committed to making a difference. If anything, the case for collaboration is even stronger than ever.
These collaborations can step up where government has stepped back and remind companies of the continued importance of transparency and action on environmental, social and governance issues.
For advisers assessing investment funds, collaborative engagement offers an additional lens through which to evaluate the quality of stewardship.
Participation in such investor initiatives indicates that a manager can look beyond competitive rivalries and work with peers to seek better social and environmental outcomes on behalf of clients.
Read more: ESG investing has a governance problem
