At Moneyworks, we believe that a core responsibility for fund managers is that they represent their investors by engaging with the companies that they choose to invest money into. There will be some funds (for example defined index funds or index funds) where that is not a part of their service offering, but for the majority of funds that Moneyworks recommend, this is a core part of their job.
Engagement is the first step. This represents the fund manager continually talking with the management of the company (and not just the Board and CEO, but at many levels and in different areas).
Active Engagement is the next step. This is when a fund manager engages with a company to get them to change what they are doing. Many of the fund managers that Moneyworks recommends to our clients actively engage with companies.
A particular focus is to get companies to increase the reporting on how they are managing their Greenhouse Gas Emissions, what policies and processes they have in place to firstly measure their emissions, then to reduce them and how to transition to net zero. Understanding what companies are doing (getting consistent measures of Scope 1, Scope 2 and Scope 3 emissions is a first step, and New Zealand companies are working on achieving their first reporting on this for the first round of reporting under the Taskforce for Climate Related Financial Disclosures (TCFD) legal requirement in 2025) is stage one.
Encouraging the companies to have a net zero target by 2050 (or earlier) and to take their responsibilities seriously is stage two.
The power of a fund manager to get change will be associated with a number of factors including a. the size of the organisation b. the credibility of the people asking the questions c. how realistic the questions are that are being asked.
One of the most powerful investment organisations is the Norwegian Oil Fund. The fund was established in the 1990’s to invest surplus profits from Norways huge oil and gas reserves and holds around $240,000USD for every man, woman and child in Norway. The fund has long embraced the responsibility of actively engaging and ethical investing and the list of exclusions that it regularly publishes is one of the inputs into the Mindful Money research that Moneyworks uses to inform our investment recommendations.
The fund invests in 9338 companies across 70 countries and controls an average of 1.3% of those companies (but with some investments being at a higher level).
The fund has announced that they will ‘vote against boards that don’t set clear science backed net zero targets’. They have been engaging for a number of years and are now stepping up the pressure – only 17% of the companies that the fund invests in have set those targets and they are now ‘actively pushing the remaining 83% to act fast to set their targets’.
To date, the fund has already voted against the entire board of 18 companies in 2022 and there are at least 80 companies that will have negative votes in the next few months. If there is no improvement the fund may sell the stake in the company (which can be significant depending on the size of the investment).
This approach is not reserved for huge fund managers. Smaller fund managers with credibility can achieve change within companies, either by themselves or collaborating with others (either informally or formally through structured collaboration organisations). This active engagement is something that we are engaging with our fund managers, so that we can understand how they are (or are not) representing their investors, information that feeds into how we recommend those fund managers.
Read more here https://www.theguardian.com/business/2023/feb/03/worlds-biggest-investment-fund-warns-directors-to-tackle-climate-crisis-or-face-sack?
