Getting heard on climate: small investors take on big companies
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
David Gowenlock, a financial services professional, was at his office near London’s Old Street when he got an email from his father, who was feeling a bit emotional. “It looks like you were successful,” his dad wrote.
Attached was the news that HSBC was phasing out its financing of coal companies, after a campaign by the bank’s shareholders including Man Group, the biggest listed hedge fund in the world, and Amundi, the largest asset manager in Europe.
Another of those shareholders was 35-year-old Gowenlock.
He was an electronic engineer when he decided to switch career to work in a field helping to combat climate change. After studying for an MBA he got a job as an adviser to venture capital and private equity fund managers on impact investing strategies.
Then he came across ShareAction, a non-governmental organisation that has brought high-profile resolutions at some of the UK’s biggest companies, from HSBC to Barclays and Tesco, to push them to become more environmentally or socially responsible. Through them, he added his name to the HSBC resolution. “I saw the power of money can be a force for good,” he says.
David is one of a growing number of small shareholders who are trying to use their position as investors to help bring change at large corporations. With the UN’s COP26 conference on climate change in Glasgow starting on October 31, awareness of the risks that rising temperatures are posing to companies across the world has been growing. While some retail investors are choosing to ditch oil and gas companies in their portfolios, others are teaming up with institutional investors to push boards to take action.
Retail investors who want to get more involved largely have to rely on their own initiative. They can make sure they are registered to vote at AGMs, where companies are increasingly putting climate change proposals on the agenda. Or, they can contact pressure groups such as ShareAction — for free — and offer to get involved in shareholder resolutions.
There are more and more opportunities for investors big and small to have their say on the climate risks facing the companies they invest in. Climate change votes have been an increasing feature of annual general meetings across the world’s largest companies in the past year.
In October 2020, Spanish airports operator Aena became the first company in the world to give its shareholders an annual vote on its plans to tackle climate change. That was in a response to an initiative from one of its largest shareholders, billionaire UK hedge fund manager Sir Christopher Hohn, through his TCI Fund Management group. A campaign by Hohn called Say on Climate calls for companies to disclose their emissions, present a plan to reduce them, and also give shareholders a vote each year on that plan.
In July more than 50 investors including JPMorgan Asset Management and M&G built on the “say on climate” campaign by demanding that companies disclose their plans to cut emissions and allow shareholders to vote on them every year.
Unilever, Glencore, Moody’s and Nestlé all said they would introduce a vote on climate plans this year. And support for shareholder resolutions on climate change has hit a record high with more than half of investors on average backing such resolutions against just a third in 2020, according to Proxy Insight, a data provider.
Activist groups that collect retail and institutional shareholders to bring resolutions to companies have sprung up around the world. In the Netherlands, Follow This brought a resolution to Shell at its annual general meeting in May, calling for the oil and gas major to set more “inspirational” targets for cutting its emissions. While the motion did not pass, it attracted the support of nearly a third of shareholders — more than double the amount from a similar vote the previous year.
As You Sow, a US non-profit, brought a petition to Microsoft this summer calling for it to look at the environmental and social benefits of making its products easier to repair. Australian shareholder group ACCR has filed resolutions at BHP, the mining group, over climate-related lobbying.
In the UK, 100 shareholders are needed to file a resolution if they collectively hold less than 5 per cent of the company, meaning that retail investors are often key.
Catherine Howarth, chief executive of ShareAction, a registered charity that receives the majority of its funding from restricted grants, says: “The role of the retail investor in all this is so crucial. There’s literally nothing more impactful you can do if you’re interested in investing.”
Yet shareholder resolutions are far more common in the US than in the UK, where only a handful of shareholder resolutions are filed each year. Companies tend to view them as damaging to their reputation and prefer to avoid them, Howarth says. “They really don’t like such a visible expression from large institutional investors on disagreement with the board of management’s position on something.” She adds: “Companies manage their reputation in the ESG space incredibly proactively at the moment.”
Because of this, boards will often seek to resolve issues directly with shareholders, rather than allowing things to get to the resolution stage. Often this can have the same outcome. At HSBC, where David Gowenlock was involved, ShareAction withdrew its resolution this year after the bank promised to put forward its own proposal on curtailing lending to coal companies — something the shareholders pushing for change had agreed in advance.
Still, getting institutional investors involved in shareholder resolutions can be hard work, Howarth says. “It’s months of tiptoeing round trying to reassure them all, saying it hasn’t come of the blue, but is after a long period of dialogue with the company.”
The Investment Association, the UK’s asset management industry’s trade body, says resolutions can be “an important stewardship tool” and expects they will become more common as climate change rises further up the agenda. But it believes that engaging with boards before taking things to the resolution level can often be very effective. One issue shareholders need to balance is requiring the board to take action but not telling them exactly what to do, which is not their role. And different shareholders may disagree on what constitutes a material long-term risk to a company.
Certain large investors are more willing than their peers to get involved. LGIM, a large passive investor, has been stepping up its participation in shareholder resolutions both in the UK and the US, often teaming up with smaller shareholders. John Hoeppner, head of US stewardship and sustainable investments, says: “Small shareholders filing resolutions is a growing trend.” However, he cautions that filing resolutions is time consuming. “We try to pick them sparingly and use them strategically.”
One problem for retail investor engagement, however, is that the vast majority remain uninvolved. Most do not vote at all on proposals put forward at AGMs by the boards themselves, even when they concern executive pay, a topic which tends to stir emotions.
Cliff Weight, a director at ShareSoc, which represents UK individual shareholders, says that despite owning 28.4 per cent of the UK stock market, “it’s almost impossible” for retail investors to vote at AGMs. Often this is because they own their shares through investment platforms rather than directly, and investment platforms do not always make it straightforward for their clients to educate themselves. “I think the industry should make it a hell of a lot easier,” Weight says. “It’s a shocking abuse of democracy: we wouldn’t allow it if 20 per cent of the country weren’t allowed to vote in general elections.”
A report last year from the Law Commission recognised this problem, noting that while so-called intermediated securities made trading a lot quicker and cheaper, they raised issues of transparency and corporate governance. Because end investors, or ‘ultimate’ investors, are not named on the shareholder register of the companies they are invested in, they must rely on their investment platform to help them to vote. One of the report’s proposals is that intermediaries should be obliged to facilitate the exercise of voting rights by their retail investors.
Interactive Investor, one of the largest investment platforms in the UK, says it recognises that it is not easy for retail investors to vote on their shares, and admits that a tiny proportion of them do. But, with an eye to keeping their customer base engaged and active, it is trying to encourage them to do more.
Moira O’Neill, head of personal finance, says: “The platform industry can do more to aid and empower their customers to lobby for change.” Since the start of this year it has encouraged customers to sign up for its free online voting service, with numbers opting to do so “slowly creeping up”, she says, mostly among older clients. But the movement is in its early stages, she says. “With shareholder voting we’re at the beginning of our journey. There’s a lot of jargon that people who want to vote have to wade through.”
But, for reform-minded investors such as Gowenlock, it’s worth the effort. “Imagine if I called up HSBC as a customer and said: I want you to phase out coal,” he says. “I’m not going to have the slightest chance to make change. But when you hear that the campaign’s been successful, that’s an amazing feeling.”
Alice Ross is deputy news editor of the FT. Her book, Investing to Save the Planet, is out now.
‘I rely on my dividends, but my family comes first’
When Edwards, 66, from north London, retired from full-time work, she found herself with spare time on her hands. She had never been particularly interested in personal finance: her career had been in the public sector. But before she retired, she had inherited shares in 10 different companies, including Shell and Marks and Spencer. The holdings had just ticked along, giving her a regular but modest income.
But now she began to think about where her money was going, given her concerns about climate change. Should she sell her shares?
Edwards was used to public speaking. She had been the chief executive of two charities, Homeless Link and the Mental Health Foundation, and had been awarded a CBE for her work. Those roles had seen her sit face to face with UK government ministers, trying to convince them to do things differently. She decided to use her skills of persuasion to convince companies to do more for the environment.
She travelled to Shell’s AGM in 2019 and sat right at the front, hoping to get her question in early before the directors became too defensive. She asked the company to do more to combat climate change. She stressed that, like others in the room, she relied on her dividends, but she argued: “If I was asked, do I put my family first or do I put my dividends first, there is absolutely no competition. And I think many people in this room will feel the same.”
‘To really influence you have to be inside many of these companies’
Lahraoui, 33, from Hertfordshire, had embarked on a career in asset management when he decided to get involved in shareholder activism on the side.
From a low-income family, he already had an interest in social mobility issues and had volunteered in his spare time, speaking in schools. “I’m very much of the engagement ilk — I do feel to really influence and change you have to be inside many of these companies,” he said.
He attended two AGMs virtually during the pandemic: Associated British Foods and Taylor Wimpey, and asked questions on behalf of ShareAction.
ABF, along with other food manufacturers and supermarket chains, was under pressure to provide healthier products to help tackle obesity, while Taylor Wimpey was asked to provide a living wage rather than just the minimum wage for its contractors, as well as sign up to a real estate climate initiative. “I really enjoyed doing it,” he says. “It’s only a couple of hours out of my day.”
‘If you don’t participate you can’t complain’
Ansell, 47, a response worker for Westminster council in London, is one of the rare retail investors who bothers to vote at AGMs through his investment platform.
“I guess it’s a bit like voting for local politics,” he says. “In practice the vast majority doesn’t vote but if you don’t participate you can’t complain about what you’ve got.”
He transferred his pension last year from a unit trust after he discovered it was taking over £30 a month in charges out and into a self-invested personal pension.
Most of that is invested into Scottish Mortgage Investment Trust, the flagship fund from Baillie Gifford that has become famous for its tech investments.
He has broadly voted in line with the companies he invests in — he approved a proposal from SMT to increase its level of unlisted investments and also voted against Edward Bramson’s campaigns to force Barclays to shrink its investment bank.
So far, Ansell has not voted on any specific climate change resolutions. He says he would consider doing so on a case-by-case basis. “The world is only moving one way,” he says. “I think that activist investors have got potential to be a disproportionate influence. Small investors in a group have got the power to do more than they’re probably aware.”
‘It’s quite interesting, creating change from within’
Warren, 40, a full-time carer from south London, was watching the comedian Mark Thomas joking about buying one share in a company and being able to go in and “waste their time”. But it got him thinking.
He bought a share in BAT and went along to the AGM, though he wasn’t brave enough to ask a question himself. Someone from ShareAction stood up to ask a question and he ended up getting involved as a signatory to resolutions that the group put to Tesco and HSBC.
“It’s quite interesting, creating change from within,” he says. “It’s an interesting thing to do and it was such a little effort on my part.”
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