European investors are under pressure to enhance their activities when it comes to engaging with companies on ESG issues, but the pandemic added an additional burden and prompted them to redouble their efforts as well as adopt new strategies.
While the list of growing reporting requirements in the U.K. and Europe mean a natural progression in the types and intensity of dialogue with portfolio companies is underway, the COVID-19-induced move to an online operating model has made such discussions more difficult, industry experts said.
After many annual general meetings moved online due to COVID-19 lockdowns across the U.K. and Europe, it became easier for companies to "control" these meetings and stifle dissent, said Caroline Escott, senior investment manager and stewardship lead at Railpen, London, in a telephone interview. The firm is the in-house manager of the £37 billion ($45.2 billion) Railways Pension Scheme, London.
In an online format, investors aren't able to discuss with companies issues such as climate or diversity to the extent that they would have liked, she said. It also was easier for companies to cherry-pick the questions they wanted to answer at virtual AGMs, she added.
As a result, some investors are improving engagement outside of annual general meetings to convey what is important to them.
"We regularly engage with our largest holdings, or companies where we think there is a particular ESG risk, throughout the year. The vast majority of companies are responsive to our requests for a meeting, as well as our follow-up letters and thoughts," she said.
"However, where we have been unsuccessful in obtaining a meeting — either in our own right, or as part of a coalition — and we think there are key ESG issues which need to be addressed, we will seek to ask a question at an AGM or consider other escalation tactics," she added.
For example, in 2023 Railpen will pre-declare its voting intentions, Ms. Escott said.
Another U.K. investor, Border to Coast Pensions Partnership, Leeds, England, said in February that it planned — for the first time — to vote against chairmen of banks who fail to make climate progress. The pool is responsible for £38.3 billion in assets for 11 local government pension funds.
Colin Baines, stewardship manager at Border to Coast, said that the banking sector will be key to the low-carbon transition given its size and influence and role in the allocation of capital.
Mr. Baines said that to date banks have not received the same level of investor attention as other climate risk sectors such as oil and gas. "This is changing and banks will find they are subject to increasing attention and higher expectations," he said.
"A key challenge in the banking sector is that most banks' climate targets are intensity-based. These require complementing with absolute emission reduction targets and commitments to halve emissions across the banks' financing activities, thus ensuring real emission reductions are achieved in the real economy," he said.