Shareholder activism and “ESG” issues Flashcards
ESG
ESG – short for Environmental, Social and Governance – is a set of standards measuring a business’s impact on society, the environment, and how transparent and accountable it is.
The importance of ESG today
History of passive investment
Collaboration of activist shareholders has changed corporate culture
The need for public companies to impress shareholders, customers, business partners and staff
Commitment of business to ESG issues today is deep
How shareholders use legal powers to exert influence
Public companies with many shareholders
Shareholders (as owners) have legal rights (Companies Act 2006)
Shareholders hold Board of Directors to account
BUT – hard for hundreds of thousands of people to work together effectively
The AGM
An annual general meeting (AGM) is the yearly gathering of a company’s interested shareholders. At an annual general meeting (AGM), directors of the company present the company’s financial performance and shareholders vote on the issues at hand.
Presentations by Directors
Questions from shareholders
Voting on resolutions
Press coverage
Who are the shareholders who can attend AGM and vote?
Taking Aviva plc as an example……
1 vote for each ordinary share
2,808,926,099 ordinary shares (March 2023)
Individual shareholders – 509,860 – 6.05% of shares
Institutional investors – 3,522 – 93.95% of shares
The Investment Association
“The IA champions UK investment management to support British savers, investors and businesses.
Our 250 members collectively manage £8.8 trillion on behalf of clients in the UK and around the world.
Our mission is to make investment better. Better for clients, so they achieve their financial goals. Better for companies, so they get the capital they need to grow. And better for the economy, so everyone prospers.”
IA’s policy on “sustainability”
“Sustainability and the investment management industry
As stewards of our clients’ assets, investment managers have taken responsible investment approaches for many years – approaches that consider environmental, social, and governance (ESG) criteria in their investment analysis and decisions. The aim: to achieve better long-term returns for clients.”
Legal powers of shareholders
Attend and speak at AGM (and vote on resolutions)
Block or pass Resolutions
Appoint or remove a Director (50% plus one)
Request a resolution at AGM (5% or 100 shareholders)
Have statement circulated to shareholders (at Company’s expence) prior to general meeting (5% or 100 shareholders)
Call EGM (5%)
Inspect register of members (shareholders)
Have a list of shareholders - if feel strongly about a policy and want to influence them to change it.
Voting power
Sell shares - if people sell shares - market share value goes down. Less buyers in market.
The ability of shareholders to exert influence on the Board
The threat of using legal powers
Private engagement with the Board
Working with other shareholders
Speaking to press
Sell shares
The issues which activist shareholders are concerned with
Financial performance
Strategy
Transactions
ESG
Examples of ESG issues
Environmental – carbon footprint, use of renewable energy, waste management policies
Social – working conditions of employees, and the employees of suppliers
Governance – senior management and Board of Directors (capability, diversity, conflicts of interest, remuneration strategy etc)
maintaining good reputation with
Customers
Staff
Investors
ESG and shareholder activism in practice
Scrutiny of strategy and performance against ESG considerations
The prominence that plcs give to sustainability policies and ESG issues
EG – Sainsbury’s plc and Shareaction (2022)
Sainsburys – special resolution on Living Wage
July 2022 – shareholders requisitioned a special resolution at Sainsburys plc AGM – Sainsburys to be accredited as a Living Wage Employer
Resolution tabled by 10 investors (inc Legal and General)
The Board opposed, but some big investors supported (eg Aviva)
Resolution failed (16%) – BUT – led to significant pay increases for lower paid staff
Part of long campaign – led largely by ShareAction
Govt plans for regulatory reform to support ESG rating information for investors
Consultation: Future regulatory regime for ESG ratings providers (2023)
Part of Green Finance Strategy
ESG ratings providers provide transparency to assist investors
Proposed change in law – amend FSMA to make ESG rating providers subject to FCA/PRA regulation
The importance that public companies place on ESG
Companies want to be attractive to customers, trading partners, investors and staff
Need to show that practices and values align with all of the above
Well publicised ESG policies
Don’t take my word for it – do you own research
The role we all play as customers and shareholders
“Building a movement” (ShareAction)
Our customer choices
Our investment choices
What type of investor will you be?
Employability
Do you want to work for a commercial law firm?
Good to have some knowledge of ESG and shareholder activism
Interviews and assessment centres
Demonstrating interest in the firm, and part of general “commercial awareness”
Commercial law firms and ESG
