Welcome to the third episode of the GSI Podcast, from Global Systematic Investors, presented by financial journalist and author Robin Powell. In this episode we’re going to look at Shareholder Coalitions.
Joining Robin is Helen Wiggs from ShareAction. ShareAction is a charity that promotes responsible investing and works to improve corporate behaviour on environmental, social, and governance issues.
In this episode we’re going to look at how, by working together, shareholders can have a much bigger impact on the way businesses are run than they would do on their own. Just because a fund manager is small that doesn’t mean they can’t make a difference. GSI likes to work in coalition with other like-minded organisations and one of those is ShareAction. Helen Wiggs is ShareAction’s Head of Corporate Climate.
1.25 Robin Powell | Host: I started by asking her for some background information about the organisation and how it’s developed.
Helen Wiggs | ShareAction: ShareAction is a charity with NGO status, and we’ve been going for just over 15 years now. So, we started life as a campaign that worked with people and planet where we helped Britain’s largest pension fund adopt a responsible investment policy. Really our focus from the beginning was more on the S interestingly enough, rather than the E. We’ve grown quite significantly over time. We’ve gone in the last three years from being a 40-plus person outfit to something more like 90 now and that just reflects where we’ve got to with a focus on sustainability.
2.25 Robin Powell | Host: You say you started on S, but you’ve moved more over to E as the years have gone by, is that right?
Helen Wiggs | ShareAction: Well, I kind of see ESG has pretty much indivisible and they’re kind of mutually supportive and it’s not as if we’ve stepped away from S by any stretch of the imagination, but E is just generally in a lot more people’s consciousness now because of the expediency around climate.
2.25 Robin Powell | Host: I saw a report the other day and there was an article in the economist suggesting that actually, ESG is too broad ranging. If you like, and maybe it’s time to focus attention, not exclusively, but primarily on climate change. What’s your view on that?
Helen Wiggs | ShareAction: I’d still go back to arguing that the whole ESG premise is pretty much indivisible. Whatever affects us from a climate perspective is inevitably going to affect us from a social perspective as well and this could be as we see increasing examples of physical risk happening right across the globe. Be it extensive heat or flooding. What I think of in terms of ESG now, which I saw described in a Forbes interview, is enhanced due diligence. That is a really great description of ESG, and we don’t talk enough about governance because governance is so important in terms of getting the S and the E right as well.
3.25 Robin Powell | Host: What would you say is ShareAction’s purpose as an organisation?
Helen Wiggs | ShareAction: Our purpose is that we’re trying to help build a world where the financial system really serves our planet and its people. And we want to encourage a better standard of stewardship and overall investor engagement along those lines of sustainability and with ES and G firmly in mind.
3.50 Robin Powell | Host: Do you find that you genuinely are making a difference in those areas?
Helen Wiggs | ShareAction: I’ve been at ShareAction three and a half years now and I have to say that if I look through things in a rear view mirror there’s been a seismic change in the way, at least European invest investors are thinking about sustainability and stewardship, and certainly more investors are actually turning to us to ask for help and advice. Yes, I can certainly see progress.
4.20 Robin Powell | Host: I think I’ve seen ShareAction describe itself as a critical friend. What do you mean by a critical friend? How do you see your role in that respect?
Helen Wiggs | ShareAction: It’s really important to us that, as a charity, we are independent. We are philanthropically funded by charities and endowments. Now there are some climate-focused or ESG-focused entities or investor coalitions which are funded by investor subscriptions. And for us, it’s quite important to be independent. Because we do feel that being a critical friend means that we have to speak truth to power and it’s very hard to speak truth to power when that power is paying your salary. So, from that perspective we want to be supportive, but we also want to call out bad actors when need be.
5.14 Robin Powell | Host: You say you’ve been there yourself for I think three years you said. What is your background and how did you come to end up at ShareAction?
Helen Wiggs | ShareAction: My background is in financial services. I worked as a broker for 15 years covering global markets. When you work as a broker you are inevitably coloured somewhat by the experiences in your career and probably more the recessions and bear markets and the bull markets. What left its imprint on me was just risk and how we think about risk as investors. In my final broking job though they were starting to write about ESG, not in the way that we probably read about ESG now, but it really fascinated me that climate was a risk. I was concerned that perhaps, from a broker-client perspective, we weren’t best serving our clients in communicating that risk. I think it’s an interesting role that NGOs play now where we’re starting to fill the vacuum of broker research that can’t necessarily produce the kind of research that we are producing because there might be some conflicts, or relationships that are problematic, where they just can’t write the kind of things that we write.
6.33 Robin Powell | Host: That’s interesting that you’ve actually moved over from the city of London. We’ve had a few voices in the city, if you like, questioning the value of ESG in recent months. From your own experience of working there, how seriously do you think the city does take ESG and particularly climate risk?
Helen Wiggs | ShareAction: Yes, it’s a thorny one to answer. One thing I take away is a positive in the last three years when we’ve spoken to banks, climate now has moved to underneath their kind of risk umbrella and their overall risk umbrella. So, they know it’s there. I think one of the things that we talk about a lot is alignment and alignment often people then think about one-and-a-half-degree alignment, or alignment with Paris promises. But actually, we need to think about alignment within banks as entire entities and in some large banks. |There are inevitably some business units that are more aligned than others and those that take it more seriously than others because they’re seeing impact already on their bottom line or business units, or at least they’re starting to see reputational risk coming in as well.
7.54 Robin Powell | Host: You have something at ShareAction called the Investor Decarbonisation Initiative (IDI). Tell me something about that, and how it works.
Helen Wiggs | ShareAction: The Investor Decarbonisation Initiative is six years standing now and it’s evolved over that time. In its initial version, it brought together a coalition of investors who were focusing on decarbonisation of industry. We used the investor voice to send investor-backed letters to companies globally anywhere in the world to ask them for commitments to either science-based targets initiative, or commitments to electronic vehicles and decarnbonisation of corporate fleets to 100% EVs by 2030. Then over time we realised, and this is our learning from our work with banks, that actually engagement was much more effective if we started to talk to companies, and consistently, on a sectoral level. We’ve moved from a very global, cross-sector focus to now particularly looking at the chemical industry.
IDI focuses on an opportunity for investors to collaborate, learn and advocate. The collaboration perspective means that members can amplify their influence over companies through collective engagement. Over the last six months we’ve been talking to European chemical companies with our investor coalition and digging a bit deeper on their transition plans. Then also we’re producing our own research to help fill knowledge gaps among investors. It’s interesting that investors are obviously very time-poor and just don’t have the time to really produce very in-depth research that kind of kicks the tyres in a way that’s non-financial. There’s quite a lot of qualitative pieces that we’re putting out where investors can look at these companies from a purely climate perspective. Then lastly, from an advocacy point of view, we’re encouraging investors to go and ask more difficult questions of companies at AGM and sign letters and just asking for stronger commitments and foster and fast action on climate.
10.10 Robin Powell | Host: You were talking earlier about your independence, being a charity and you very much see that as a benefit in this regard, but you just mentioned collaboration there and I noticed that ShareAction seems to be involved in putting together coalitions, if you like, to exert influence. How important do you think that is and why do you do it?
Helen Wiggs | ShareAction: The real impact of coalitions is inevitably size. We could write to a large corporate as just us, as ShareAction, but if we can mobilise 15 trillion of assets under management in a letter behind us, it’s hard for an investor relations team to not answer and that makes it incredibly powerful. Not only that but when investors are willing to go public with letters it starts to bring social or climate issues into the spotlight and gets picked up by the media and press.
11.08 Robin Powell | Host: One of the things that’s so exciting about ESG is that it’s almost changing investing from something that’s been a competitive activity in the past. Investors have in effect been competing with each other. Whereas now, in many ways, they’re on the same side on issues. Tell me something about that.
Helen Wiggs | ShareAction: I think there’s inevitably a lot more best practice and knowledge sharing that’s gone on. Certainly, from my background I’ve seen hugely sort of competitive behaviour going on in the past with investors but now I do feel that there is a lot more learning. Interesting not just across the investor space but also if you speak to particular companies there’s now a lot of cross-sectoral peer learning in terms of where they can start to make inroads. When we did a lot of work on transport and how to decarbonise corporate fleet it was fascinating to see how many companies work together. The climate group leads a campaign called EV100, which we got behind in the initial stages of IDI, and the peer learning was a huge attraction and still is to those members of EV100, because they want to know what the options are out there and what have fleet managers learned from their own sort of adoption and pathway to decarbonising a corporate fleet.
12.31 Robin Powell | Host: What do you think is the role of investors as far as ESG is concerned and a phrase that you use on the website is ‘catalyst for change’? Are investors catalysts for change? If so, what does that mean or are they actually the change agents themselves?
Helen Wiggs | ShareAction: It’s a bit of both and what’s really fascinating if I think about my formal life, we’ve always seen activist investors. If we think of activism in the old way, it was how do you maximise the best possible from your investment. Activism now with a climate lens is generally and genuinely investors trying to influence things for the good of companies. Some companies would recognise that they’re not far enough along their own ESG pathway as they need to be. They do to some extent appreciate investor insight in the same way that they appreciate investor insight in the old way in terms of thoughts about general financial progress.
13.40 Robin Powell | Host: Tell me a little bit more about engagement with company boards. It’s fair to say there are different levels of engagement, aren’t there?
Helen Wiggs | ShareAction: Yes, this is something I think, particularly over the last couple of years we’ve seen from an investor standpoint where investors are getting a bit more sophisticated about their stewardship bubbles and are now starting to be a little bit more courageous in deploying escalation strategies and that’s something that we’ve had in progress for some time now at ShareAction.
If you like, low-level engagement would not necessarily be at board level. It would be a letter to senior management requesting a particular commitment or noting something particular about an energy policy and then as we start to escalate or feel that we’re not being listened to, then it moves to more public questions. So, activism at AGMs, we’re asking more difficult questions of boards and often again that might be signals to journalists who might be picking this up as a theme from a climate or a social perspective. Then it’s when we start to really wind up the escalation, when we start to move to resolutions, where boards get involved and we start to talk to more senior level members of companies.
Our banks team particularly have been in conversations with chairman’s during resolutions time because now companies really start to take things quite seriously.
15.12 Robin Powell | Host: I was going to ask about that. Do you find that over time companies are being more receptive to what you are trying to do? Are you having less resistance if you like as time goes by and, clearly recently we’ve seen yet more signs of the effects of climate change? Do you think that companies are being more responsible now?
Helen Wiggs | ShareAction: I think responsive is probably what I describe. I mean again, if I look back at the last three years when I first started ShareAction and we’d send out letters, we probably used to get about half the responses compared to the letters we sent out. Now I’d say the response rate, and particularly now as we’re focusing only on Europe, is nearly a hundred percent. That is very much to do with the fact that there is huge reputational risk. We’re better known as an organisation, just generally, we’ve got more investors advocating for us as well. I think in the past I wouldn’t have necessarily been able to ask an investor to drop a line to a Head of Sustainability and now I can. So, the responsiveness is certainly huge. It’s very much night and day versus three years.
16.38 Robin Powell | Host: Well, that sounds very encouraging. I suppose, a question, that some people might ask is, these companies now have sustainability policies, they have sustainability departments and Heads of Sustainability, and so on. So why is it important then that we have organisations like ShareAction that are trying to have their influences as well?
Helen Wiggs | ShareAction: I think with Heads of Sustainability, as somebody who’s worked in a large corporate organisation, that’s a big ship to turn around and sometimes however much you might want to do things within your particular unit and you’re providing a lot of advocacy to the board, you’re not always listened to. It’s interesting that during AGM season sometimes we’ve had Heads of Sustainability come to us and say, ‘I’m really glad you asked that question because I’ve been bringing this up to the board for goodness knows how long and they’ve ignored me’. Sometimes you need an external force to just surface those really difficult questions that perhaps the board conveniently doesn’t want to hear about.
17.50 Robin Powell | Host: Tell me about shareholder resolutions, because this is an important part of what you do, I suppose the bottom line is, do they actually work? Are they effective?
Helen Wiggs | ShareAction: They have certainly not gone away and there are a lot more of them versus again, three years ago. So, they’re effective in that they may not always be passed from a climate or an S perspective, but they put an issue out there in the public domain. They bring climate front and centre. They remind boards and senior leadership what their climate duties perhaps ought to be and also make shareholders aware of risk. The important role we play as ShareAction is, I kind of think of it as sort of democratisation of being a shareholder because we think of shareholders or investors as being fund managers. But in the days of auto-enrolment or ISA’s we’re all shareholders and I think it’s helpful to remind companies that they’re still beholden to the general population too.
19.06 Robin Powell | Host: Maybe you could give me some kind of real-life examples then of shareholder resolutions where ShareAction has made a positive difference.
Helen Wiggs | ShareAction: I think about our banks’ resolution. We have taken resolutions before to Barclays where we were just not very happy with their energy policy and, even though that resolution was defeated, it sent the company back to the drawing board if you like and how to rethink. It’s not just the resolution necessarily has to be passed it’s just there sometimes to generate thinking and also a more productive conversation. It’s interesting where we have brought resolutions, particularly the banks where suddenly the dialogue massively picks up. HSBC would be another example where again we were dissatisfied with their energy policy, brought to resolution, and we’re having far more conversations with them than we did previously.
20.10 Robin Powell | Host: You mentioned that banks are an important focus of yours as an organisation and earlier on you mentioned chemicals as well. What exactly have you been doing in the chemicals sector?
Helen Wiggs | ShareAction: We looked at chemicals because as we started to rethink the Investor Decarbonisation Initiative, as I mentioned, we went from being pretty much cross-sectoral to doing a deeper dive into a particular sector. And we were lucky in that someone had joined us from the fund management industry who worked as an ESG analyst. They had seen lots of things at would come across their desk and noticed there was an awful lot on oil and gas and all kind of you like, supposedly the low hanging fruit from a decarbonisation perspective. But we had to think about what was in a lot of fund managers’ portfolios that perhaps they didn’t look at, or hadn’t had the time to look at, and was related to decarbonisation and probably had link to oil and gas, and chemicals was a real standout.
Our concern with chemicals was that it was getting thrown into the hard to abate buckets that were almost seen as impossible to abate and not really enough attention was being given to what was being done or what could be done when.
21.28 Robin Powell | Host: I have written about shareholder activism in the past, particularly in the oil and gas area I constantly get comments from people saying look investors who care about the environment shouldn’t be invested in those companies at all. They should just simply walk away from them. They should divest. What what’s your view of that? Is there a role for divestment or is shareholder activism a better way to go?
Helen Wiggs | ShareAction: It’s a really good question and in previous years we’ve certainly advocated for engagement. My concern about engagement now is that the window of time for us to take meaningful action is rapidly thinning. I think nobody could dispute the real significance now of the physical impacts of climate change globally. So, we’ve obviously felt the effects very close to home in the UK the last couple of days, but we could equally point to heat domes in North America and flooding in Australia, not to mention generally that the global south is already suffering under climate. I’d still always encourage engagement for those people still invested in oil and gas companies. There is more they can do. From the engagement perspective those people who are still in those companies are still hopeful that those companies can make that transition in plenty of time. But time is the one thing that we are running out of.
I do still get nervous that we may end up seeing forced divestment depending on how climate progresses just generally and what happens from here on in because I think even scientists have been somewhat taken aback by how quickly things are moving.
23.34 Robin Powell | Host: Moving on to fund managers then, what is it do you think that drives managers to be active shareholders?
Helen Wiggs | ShareAction: Well, I’d like to go back to the phrase that I used before, that I noticed in the Forbes article about a month ago, where there are some managers who still see ESG as enhanced due diligence. I think it’s really being a great steward of capital and thinking about fiduciary duty, with an ESG lens on it. Being an active shareholder means that investors or professional investors thinking quite closely about legitimacy, and I guess climate expediency, and also what are the factors that are likely to enhance shareholder interests. But also, as I said, at the beginning, taking into account risk.
24.37 Robin Powell | Host: There was a tweet, I don’t know if you saw it the other day by Senator Bernie Sanders, saying that it was disgraceful that so much of world equity, if you like, is owned by two or three massive fund managers, Vanguard, Blackrock, State Street, for example. You could look at this and say, why are small players like GSI, for example, even thinking about this issue, surely compared to the big players, they have very little influence. What do you say to that?
Helen Wiggs | ShareAction: What is clear is that even the small, smaller managers can demonstrate that their voice counts and can demonstrate that there’s a different way to do stewardship. There’s obviously more than GSI out there, but it’s great that even at whatever level that you are operating, be you are a boutique fund manager or a large asset manager, is that if you can demonstrate you have excellence stewardship, or you are really taking climate and social and governance issues into account you can be a pretty impactful fund manager.
I don’t think the size is necessarily what it’s all about. It’s about best practice and putting your customer first. This is something that we all struggle with in terms of seeing the kind of predominance of the larger players. We’ve all got a role to play and those who are on the activist, particularly on the activist side, that publicity is useful irrespective of size and if those fund managers who work collaboratively can push hard enough then again this brings back climate issues into the media spotlight and creates a discussion point.
26.58 Robin Powell | Host: Activists have targeted the big asset managers if you like. I had a meeting at Vanguard the other day and there was a very big protest outside. Vanguard are they any worse or better than the other big fund managers at shareholder activism?
Helen Wiggs | ShareAction: Well, I’d direct you to have a look at our leading practice guide that we published at the end of last year and we run a biannual asset manager survey. This isn’t necessarily aimed at individual investors – the audience is really asset owners. We send a survey to the asset manager community on a biannual basis and the response rate again is pretty impressive. The team is incredibly diligent in terms of back-checking facts and then we’ve ranked them according to answers. It’s incredibly noticeable that in the last couple of iterations, it’s the European fund managers in general, who are leading the pack and the US managers who are somewhat behind. I think some of that is perhaps a combination of just regulation within the European Union and aspiration and the US has had a somewhat different administration, shall we say, the last couple of years and probably is in the moment of reflection on that.
28.35 Robin Powell | Host: So just drawing a few strands together before we finish. What does good look like from a shareholder activism stand?
Helen Wiggs | ShareAction: From the response to our asset manager survey inevitably there’s nothing like a bit of competition. When investors are scored in the lower quarter, we often get questions about, ‘Well, how could we have made up extra marks? What takes us up to the top 10?’ In response to that, we wrote a leading practice guide, and the leading practice guide highlights some basic things that people can include in their responsible investment policy and general practice. One key one is just voting and transparency about voting and rationale and supporting those key climate votes that we think can make a difference. Beyond that, it’s making sure that when you’re engaging that you’ve got a steady framework of engagement. Are you asking the right questions of your investee companies? Do they have a one-and-a-half-degree target insight? Do they have short and medium-term and long-term goals? Are they thinking, not just about 2050, but what does their business look like? How are they future proofing for 2030, 2035? How does their CapEx look like? It’s just being able to prove that you are thinking about things very carefully with a climate and social lens and again I’d say also thinking quite closely about governance and what governance means within the changing climate.
30.22 Robin Powell | Host: You, you were talking earlier on about time running out to tackle climate change, generally are you optimistic, pessimistic, about the role that the investing industry and investors can play in trying to combat global warming? Will it make a difference or ultimately is it out of investors’ hands? Is it really down to governments and so on?
Helen Wiggs | ShareAction: I think doing nothing at the moment is not an option. I like to think optimistically how quickly so many fund managers have come, in a very short space of time, and some have become incredibly progressive in a number of years. That’s not to say that we’ve got a lot more work to do and a lot more education to do of the investment community. But we can move really fast, and I think COVID was a great example of when people know that when there’s an emergency a lot can be done quite quickly. The thing that slightly scares me is that I do wonder how many sorts of physical manifestations of climate it’s going to take before people really are aware of the necessity of action, but I think it’s coming very quickly. Again, coming back to risk, when investors realise that there are significant financial losses by not doing anything they’ll start to do more things and faster.
32.10 Robin Powell | Host: In a sense though, wasn’t the pandemic a massive distraction from the climate emergency and you could say as well that this inflation issue, we’ve got around the world, rising interest rates, the crisis in Ukraine, yet again just when we need to be focused on the climate our attentions are being forced elsewhere?
Helen Wiggs | ShareAction: It does feel like a confluence of challenges right now. Although the conversations I’m having with investors and companies don’t suggest that anybody’s taking their foot off the pedal. Having worked through recessions from a financial services perspective if we do, (obviously, we’ve just hit a technical recession in the US and there are question marks about a recession in Europe), in some ways I try to look at this more optimistically because if we enter a recessionary environment people become more reflective and start to look for opportunities. So, what gets us into a recession is often completely different to what gets us out. There is an awful amount of money going into transition and decarbonisation of energy systems. So, I’m going to be optimistic and argue, that really, we may see some opportunities here in terms of a faster transition and decarbonisation of our energy systems.
33.43 Robin Powell | Host: Well, it’s a very positive note to end on. Helen thank you very much, for your time and for your insight. Thank you as well to ShareAction for all the excellent work that you do.
Helen Wiggs | ShareAction: Thanks, Robin. It’s been really great chatting to you.
You’ve been listening to the GSI Podcast from Global Systematic Investors.
I’m Robin Powell and you heard me interviewing Helen Wiggs from ShareAction.
GSI prides itself on designing, building, and delivering portfolios that have better risk and return profiles than traditional market-weighted indices. If you’d like to find out more, just visit the website — gsillp.com. That’s gsillp.com.
Thank you again to Helen and thanks to you for listening. If you’ve enjoyed this episode, please do review it. We’d love to hear your views. And of course, remember to subscribe to it so you don’t miss the next one.
Until then, goodbye.
PLEASE NOTE: The original interview has been slightly edited for brevity and clarity
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