What a year this has been for shareholder advocacy.
This season we reached a new peak in investor support for ESG (environmental, social, and governance)-related issues. Most of these majority votes during company annual meetings have been for shareholder proposals asking companies to evaluate and describe the rationale for their spending on direct and indirect lobbying activities. Our results with Walmart have been part of the momentum. Taking the outsider vote into account, our request to the company to evaluate its spending on indirect lobbying activities received majority support (54%).
This type of reception speaks volumes about what shareholders want: more consistency and oversight of corporate money and massive influence on policy issues. Asking Walmart to check where it is wielding its influence is a hugely reasonable ask given the risk that indirect funding could bring if left unexamined.
This milestone was a long time in the making and a collaborative effort among Zevin Asset Management allies and partners. Marcela Pinilla, the firm’s new Director of Sustainable Investing shared some of her perspective on how Zevin Asset Management’s work aims to create direct and lasting impact, and how this vision plays into our goals as a firm and those of our clients:
How does Zevin Asset Management’s shareholder advocacy approach differ from the norm?
Our approach to investing and to advocacy is a top-down and bottom-up approach. We find this to be a more powerful way to create impact than we see in much of the investment management industry.
We continually scan macro ESG trends and keep a pulse on grassroots voices on the ground. We identify these trends and integrate our evaluation of them into our investment decision-making and into our advocacy strategy. We listen to, and engage with, NGOs, community groups, and other grassroots voices to understand the trickle-down effect of corporate or policy activities.
This approach also helps us identify headwinds for companies and entire industries. Our goal is to improve social and environmental outcomes and ensure that the companies with which we engage are not only thinking about “outside-in” risk management, but also about future positioning vis-a-vis their outward impact.
This is also how we become the tip of the spear in shareholder coalitions and how we know we are distinctly different. The sustainable investment space has evolved very quickly in the last five years. According to Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management. This signals a significant recognition that ESG issues matter and that ESG integration is now mainstream.
But as we know, these approaches come in a lot of flavors, from robust to frivolous.
“Business as usual” in advocacy is known via the trendy new term of ‘stewardship.’ In our view, this is little more than simply pushing for a policy at a company — which usually results in very little actual impact on the ground. Those firms looking at investments only from a risk analysis perspective are satisfied when they see a company has checked the box on a policy. They’re “covered,” so to speak.
We need to go further than that—we have 11 years left on the SDGs!
We’re not okay with just checking the policy box. We ask companies about what they are actually doing: what is different in the company after a policy is adopted? How is it changing a behavior or a strategy or a function to achieve a better goal? How is a company watching the space it alters when it employs, expands, produces, or pollutes?
What makes Zevin Asset Management go further? We are looking at the impact of business on society and on the environment. We are researching material risks to companies — those that affect their license to operate, shrink their pool of talent, affect their reputation, or present regulatory blind spots, for example. That’s from the outside in. But we are evaluating corporate performance from the inside out, as well, to determine their impact on structural racism or local effects of climate change.
To create real change, we need to go beyond the norm. We want our investments to help shape the prosperity we want to see. That is a big reason why our clients invest with us: for our impact.
How do ESG and shareholder advocacy tie into value creation?
A lot of investors talk ad nauseam about generating alpha from ESG, which I find to be mostly marketing.
The value creation derived from ESG is about protecting companies’ ability to bring in revenue and to grow. For us it is also about a company’s attention to, and management of, the impact they have on society and the environment. Today we understand much more about the interdependence of resources and of system-level risks, such as biodiversity. It behooves investors and companies alike to understand and address shared risks as well as shared impacts. We look for issues and trends that we see as both material risks to companies and important for societal improvement.
As mentioned earlier, we need to better understand the macro forces and big issues that may create headwinds or tailwinds for an industry or company and ultimately impact communities.
What issues do you see as a primary focus for Zevin?
We aren’t focused on any single issue, as many ESG issues are intertwined. The world is changing, and often we see that corporations are not nimble enough to keep up and position themselves correctly.
We’ve been very active in a range of shareholder advocacy initiatives that have brought exciting change on racial justice and climate risk, as well as how ESG issues are governed. On the latter issue of corporate governance, for example, we initiated and led campaigns that tipped the scale towardApple and Alphabet acting to link executive compensation and bonuses to ESG-related goals. This is an important step, as it provides incentives to upper management to make improvements on ESG factors that are tied to long-term business success. Absent a regulatory stick, the bonus carrot is a real game changer when it comes to accountability.
For more on Zevin Asset Management’s approach to shareholder advocacy, download our Shareholder Advocacy Guide.