Sustainable investing continues to gain momentum

The sustainable investment movement continues to gain momentum as a growing number of investors around the world factor environmental, social and governance considerations into their decision-making.

Activism of a Different Nature: Social Investors Advocate for Change in the Proxy

Pay Governance, April 2015

The sustainable investment movement continues to gain momentum as a growing number of investors around the world factor environmental, social and governance (ESG) considerations into their decision-making.

The findings of a recent study by US executive compensation consulting firm, Pay Governance, provide some insight into possible future trends in relation to ESG issues in Australian public companies.

Pay Governance found that shareholder proposals seeking to influence corporate policies on environmental or social issues at US public companies have increased significantly since 2009. The portion of shareholder proposals with environmental aims has doubled in this time.

Some of these proposals received endorsement rates in excess of 20 percent of voting shareholders, including proposals to adopt sexual orientation anti-bias policies, to adopt policies and report on board diversity, to conduct human rights risk assessments, and to report on political contributions, lobbying payments and policies, sustainability, hydraulic fracturing risks and opportunities, community/environmental impact, greenhouse gas emissions and climate change impact. It appears that a significant minority of US company shareholders are interested in these issues.

Interestingly, it was found that proxy advisory firm Institutional Shareholder Services (ISS) supported over 70 percent of environmental and social shareholder proposals in 2014. However, ISS tended to support proposals that requested additional reporting on environmental and social issues, but not those proposals that would place operational limitations on companies. Shareholder proposals seeking to require the inclusion of environmental and social metrics in executive incentive plans were almost always rejected by ISS and the majority of shareholders.

Momentum around corporate social responsibility also continues to grow in Australia. A case currently before the Federal Court has implications for the avenues open to Australian shareholders to promote these issues.

The Australasian Centre for Corporate Responsibility (ACCR) has commenced proceedings against the Commonwealth Bank of Australia because, according to the ACCR’s website, “when we put a number of shareholder resolution to CBA asking the bank to report on the climate risk it faces, CBA responded by putting our special resolution on its AGM agenda but refused to put the ordinary resolutions. A special resolution requires 75% of the shares voting to pass and amends the company constitution. An ordinary resolution only needs 50% of the votes and for most issues would be appropriate.”

The ACCR seeks a declaration that Australian shareholders have a right to put ordinary resolutions to the bank’s AGM. The ACCR’s website states “This is an important test case, with implications for all Australian shareholders. If we win, it will make it much easier for shareholders to voice concerns about the actions of the companies they own.”