Following the tremendous growth of ESG and sustainable investing, institutional investors globally have been increasingly building coalitions around a broad range of ESG issues. By combining asset ownership, these collaborations leverage collective resources and knowledge to influence companies on a wide range of ESG topics.
Our latest research shows 37 ESG-focused initiatives targeting companies, each of them being supported by at least $1 tn in investor assets, the highest number of large-scale ESG investor collaborations ever. What’s more, the number of investors and volume of assets backing these initiatives have grown exponentially since 2018 by nearly 75 percent.
We also find that, for the first time, a few of these initiatives are being supported by some of the world’s largest and most influential investors. A great example is BlackRock and JPMorgan Asset Management joining Climate Action 100+ in January this year. And BlackRock, Northern Trust Asset Management and State Street are among eight leading global asset managers that have signed up to the One Planet Asset Managers Initiative, which aims to accelerate the integration of climate-change analysis into the management of long-term diversified asset pools.
While environmental collaborations, namely those focused on climate risk, continue to dominate, initiatives focused on social aspects have gained significant traction. Six of the eight collaborations formed since 2018 focus on improving corporate behavior on social-related topics including Covid-19 and the 2019 Brumadinho tailings dam disaster in Brazil. We expect this trend to continue following the recent social unrest in the US and once the long-term social impact of the pandemic becomes more apparent. Issues such as employee health and safety, income inequality and diversity and inclusion will be key priorities on investor agendas for some time.
The impact of investor coalitions is also starting to be felt by corporates. Climate Action 100+, the largest ESG collaboration backed by $41 tn in investor assets, has had a significant influence on the rising number of European oil and gas companies – including BP, Eni, Repsol, Shell and Total – setting net-zero emissions goals since the end of 2019. Another success story has been the Investor Mining and Tailings Safety Initiative, created in response to the Brazil incident, which has resulted in the creation of a global independent tailings database and improved disclosure on tailings risk and safety standards from companies.
As investors see positive results from collaborative efforts on ESG, they are starting to learn the key drivers of success that can be applied to new initiatives. Beyond merely adding their name to a signatory list or campaign letter, investors have developed more advanced strategies to spur action. These initiatives are all competing for the same, often limited, attention from companies.
Two common coalition tactics include ‘naming and shaming’ and the creation of benchmarks. The 100 companies included in the initial list of Climate Action 100+ in 2017 saw, for the first time, some of their largest investors publicly pointing fingers at them.
Backed by Dutch financial firm APG, Aviva and Nordea, the Corporate Human Rights Benchmark is an example of the benchmarking approach. It discloses its rankings publicly, putting pressure on the laggards to improve their human rights disclosures. Poor performance on the benchmark’s rankings has been referenced in the supporting statements of human rights-related shareholder proposals at a number of US companies since its creation.
While investor collaborations have been around for a long time, the more recent increase in number and size of these groups is a new reality. Not surprisingly, listed companies are starting to feel overwhelmed by the sheer number of investor requests. ‘ESG engagement fatigue’ could soon join the widespread ‘survey fatigue’ felt already by many issuers.
It is clear investors are exerting pressure on companies to do more on ESG like never before. But how should IROs adjust their investor communication programs to this new reality?
They should consider tracking these developments in order to stay ahead and not be caught off guard. Studying them closely also helps prioritize responses and make an appropriate case to senior management that a response is warranted. Accepting a request for conversation is not an open door to activism. Rather, it can lead to constructive dialogue. It facilitates learning on both sides with a more nuanced discussion of sustainability strategies and performance than is provided through ESG ratings and surveys.
An ESG roadmap and a robust engagement plan that is proactive rather than reactive are useful tools for IROs. They help communicate the company’s ESG program initiatives to investors and let it tell its own story rather than surrender the narrative to others.
Heather Keough and Chris Plath are senior ESG consultants and Miguel Santisteve is the founder at Leaders Arena