How does an asset manager like Schroders actively influence the companies it invests in?


In the debate over whether investors can encourage a more sustainable recovery, the role of active ownership is key.

There is a growing momentum behind ESG investing – investing which considers environmental, social and governance factors.  

Active asset managers can influence the companies they invest in through engagement, as well as gaining a deeper understanding of the risks and opportunities they face. 

With the increasing focus on how investors can be catalysts for change, we answer key questions on how Schroders actively influences the companies we invest in.

How do active investment companies engage with firms?

There are several different methods of engagement and it is necessary to have dialogue with companies over their practices.

At Schroders, we meet with company management and specialists over specific issues by going on site visits, joining investor meetings and organising proprietary events (for example, to engage with non-executive directors over our research processes).

Prioritisation of engagement is generally process-driven, for example a drop in an ESG-rating, explaining where we’ve voted against management, or it could be driven by our thematic research. Examples of areas of thematic research the team has undertaken include plastics, sugar and climate change.

It can also be beneficial to work with other asset manager peers to combine percentage holdings in a company where that company has not responded to investors’ nudges. With a collective voice it is easier to influence a company or encourage them to provide more disclosure.

Where and how frequently does Schroders engage with firms?

Over the last five years, Schroders’ engagements have increased substantially.

Five years ago we were engaging with 243 companies, with only 18% of engagements outside of Europe. Today, we are currently engaging with more than 2,000 companies and have become much more global in our engagements with 55% of engagements outside of Europe.

There is a two-pronged strategy for engagements by either fact-finding or actively trying to influence company practices.

An example of a current fact-finding engagement is Schroders’ research into sugar, which we identified as an emerging risk in 2015 due to changes in consumer behaviour and an increasing focus from regulators and public health bodies around growing obesity and diabetes.

What we found was we didn’t have enough information to determine which companies had a bigger ‘sugar footprint’ as we couldn’t tell who were investing research and development into low-sugar alternatives.

As a result of the team’s research and dialogue, expectations were agreed, and we can now better quantify and understand sugar risk. This approach was peer reviewed by a number of academics, non-governmental organisations, and public health organisations.

We then engaged with companies on the basis of our expectation and reached  more than 55 companies globally. At the beginning of the year we saw very positive progress in companies reporting against our expectations.

Given the new perspective on obesity and health that the coronavirus crisis has imposed on policymakers, it seems inevitable that sugar consumption will come under increasing government scrutiny.

 

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