He noted that the long-term risk of doing nothing to address ESG
is so material that short-term volatility and financial performance is not relevant to the big picture. Investors are taking environmental considerations and building
them into their models,” Hoeppner added. “Tere is no slowing that down. It’s going to continue to be a charged conversation if we don’t define it very well.” Nielsen recalled a moment when the CEO of Coca Cola was asked if his company was “woke” on ESG. “It was meant to be a ‘gotcha’ question,” Nielsen said. “Te CEO’s response was succinct and clear. He said, “I don’t care what you call it, whether it’s ESG or not. Coca Cola, focusing on water use efficiency, and reducing our costs is material to the success of our company, how we manage our workforce and workplace safety issues, and treat our workers. Tat’s relevant to the success of Coca Cola. Whether you call that ESG or not, I’m going to be focusing on those issues.”
Investor Engagement on ESG Nielsen then turned to the topic of investor engagement. He asked the panelists, “How do investors prioritize when to engage with compa- nies? Investors can’t engage every single company. What strategies are considered and pursued in different situations?” Hoeppner noted that Legal and General works within six major
themes: nature, climate, people, health, digitization and governance. “We look at the most salient issues inside of those six themes and which companies are the most strategic,” he said. “If they are willing to change, could we have a good relationship with them? Ten we can have a focused dialogue. “We ask, ‘What are we getting right? What are we getting wrong?’
Oftentimes our goal is to try to create some sort of minimum stan- dard that we can then apply to the rest of the market. So we’re really using our engagements with you to try to learn and to then create a one-size-fits-all approach. I often hear from companies that you can never create a one-size-fits-all approach because we’re all unique. But for us, when we think about the 13,000 public securities that we hold, there’s actually a lot of commonalities.” “We ask questions to start communication back and forth. For
example, we might ask, ‘Tere was a vote against say on pay last year; we want to have clarity on understanding your new pay structure. Does it make sense?’ “Another example is antimicrobial resistance, which is an issue
we’re focused on right now. We reached out to a few dozen food, pharmaceutical and utility companies because we’re trying to study this issue that we think has a huge potential risk to our whole portfolio. AMR may not be material to any of these companies individually, but these companies directly or indirectly contributed to this risk. How it
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is all connected is poorly understood. And we want to understand it from companies that are super influential.” Hoeppner acknowledged how this can be perceived by companies.
“Our outreach probably often comes at you from left field because you’re thinking about all the different issues, and we’re reaching out on this very focused topic,” he said. “So that’s often how we prioritize outreach, learning what we can and then there are natural escalations. We need to have a focused conversation with you to understand how you’re making progress and then have an honest dialogue back and forth. It could have different implications. We could file shareholder resolutions, for example. Last year we had about 1,300 engagements with companies.” McHale added, “Investors are engaging with large publicly held companies on climate risk, water risk, and biodiversity loss. We’re supporting them as topic experts on the related financial impacts of companies in their portfolios. Tese issues are also top-of-mind for the companies in our network. Tey have each made their own decision to tackle their sustainability challenges and opportunities. “We try to make sure there is consistency. We put together focused lists of companies for investors so they can have some sense of where to prioritize. It’s based on research on how significant an impact that company’s operations have on that risk. It spans all sectors. Usually, that provides the basis for a new investor to come in and have a good effective dialogue with the company. And then there is always a dia- logue—we don’t suggest that investors jump to filing a proposal or directly engaging with the board.” She noted that shareholder proposals often lead to positive out-
comes. “Out of approximately 275 climate-related shareholder proposals filed during the 2023 proxy season, about a third were withdrawn for corporate commitment,” McHale said. “Companies will get a lot of credit for working through those shareholder proposals.” Nielsen echoed those remarks, saying, “Shareholder proposals are
a form of engagement. When I was on the buy side, in some ways I looked at filing a shareholder proposal at a company as a failure of the dialogue—that the company was either unresponsive or the company was refusing to take steps in a way that was satisfactory to my firm. “But receiving a proposal creates a new opportunity for companies
to engage and potentially work out an agreement where they agree to take certain steps sometimes over the next several years in return for having that proposal withdrawn. If it does come to a vote, it can be viewed in some ways as a missed opportunity on both sides. IR
Al Rickard, CAE, is Editor-in-Chief of IR Update and President of Association Vision, the company that produces IR Update for NIRI;
arickard@associationvision.com.
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