Written by Steve Watters, Head of Impact
Many investors want their investments to align with their ethical values, and one of the ways to try to drive positive change through sustainable investment is via fund managers engaging with companies. This relies on fund managers leveraging their position as major shareholders to attempt to actively influence company policies and practices. We believe the time has come to amplify our collective voice and try to drive meaningful change in the world of environmental, social and governance (ESG) investing.
Though divestment can be appropriate sometimes, meaningful environmental and social improvements are more likely to come from investors actively pushing companies to adopt more sustainable practices, rather than just avoiding problematic companies altogether.
“Engagement is a vital starting point, as investors most apparent and immediate lever for positive change.”
However, engagement practices vary significantly across fund managers, often lacking transparency and accountability. As financial advisers, we play a pivotal role in guiding our clients’ investment decisions, and our collective voice holds significant power. It’s important that we show fund managers that we notice what they do, by becoming better informed and initiating dialogue.
To help us understand their approach, Paradigm Norton developed a comprehensive engagement questionnaire for fund managers, aimed at encouraging change and accountability. We use this to consider the efficacy of the fund manager’s stewardship and engagement activities.
Our engagement questionnaire asks fund managers around 80 questions about their ESG methodology, personnel, accountability, net-zero commitments, voting, transparency, reporting and engagement programmes. The aim is to provide more detailed and comparable information.
“We’ve considered what might be a minimum standard for stewardship and engagement, as well as what is best practice. Strong performance on shareholder engagement is a key part of being a good ESG fund.”
The questionnaire looks at whether the fund manager is:
- Focusing the appropriate resources into engagement activities and demonstrating conviction
- Voting at AGMs in line with their policy (and our view of what is good practice)
- Effectively targeting engagement activities in a way that can have real impact
- Collaborating with other shareholders through various initiatives such as Climate Action 100+
- Reporting transparently on what they are doing.
This helps us to select the best funds where there are multiple options that meet our other criteria.
We continue to sharpen and refine our questions for fund managers and use the insights we gather to better define best practice. For us, this also means helping to educate clients and other advisers so that, together, we can advocate for higher standards of engagement by fund managers.
We shared a selection of these questions at the Worthstone Impact Investment Academy event, held at BAFTA, with the theme of Agents of Change. We wanted to share our learning and encourage other companies to use their voice too; we aim to empower financial advisers to become the catalyst for sustainable change.
We then planned a follow-up event in February 2024 in partnership with Worthstone, to continue the Agents of Change initiative and encourage advisers and fund selectors to think more deeply about shareholder engagement.
Fund managers should be encouraged to demand greater accountability from companies and align their investments with these principles. This industry-wide call to action aims to elevate standards across all fund management, making it clear that the investment sector must take notice and adapt to heightened expectations. Advisers can access the engagement survey on the Worthstone website.
If you would like to find out more about how we actively encourage better fund manager engagement, and how we are changing how clients think about financial planning please get in touch.
Investing places your capital at risk, and investments may fall or rise in value. Past performance is no guarantee of future returns.
