Investor engagement on environmental, social and governance (ESG) issues has evolved from a niche practice carried out by mission and faith-based investors to a mainstream investor activity. This year we are celebrating 20 years of engagement, having engaged more than 5,500 companies across 87 countries during this time period.
While we are proud of our impact so far, we are well aware that there is still much to do if we want a chance of securing a sustainable future for us all. This decade is critical for achieving the United Nations Sustainable Development Goals (SDGs), as well as the Paris Agreement goal of limiting global warming to well below 2°C. Below are some of the key shifts we expect to see in terms of investor engagement as investors strive towards these goals.
In the coming decade, we believe engagement will increasingly focus on both financial returns and sustainability outcomes. But while we know what financial returns look like, how can we measure sustainability returns?
The SDGs are a key reference point for measuring the impact of engagement. They are 17 goals and 169 associated targets, providing a useful tool for companies and investors to be able to contribute to achieving a more sustainable future by 2030. The framework has created a common language between stakeholders, and we are seeing that have a positive impact within our engagement.
The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.
The debate on ESG has moved beyond risk and opportunity. The more fundamental question now being asked is what is the role of the financial sector in creating a fairer and more sustainable society?
Vicki Bakhshi, Director, Analyst, Responsible Investment
Working together for systemic change
A fundamental shift in perspective that we are already starting to see, and expect to accelerate in the coming decade, is from viewing stewardship as about the relationship between investors and individual companies, to looking more holistically at our responsibilities for shaping the market and economy as a whole – such as climate change, ocean health, biodiversity and public health.
Implementing this practice means a sharper focus than in the past on public policy, but also widening our perspective to build relationships with other stakeholders including NGOs and academic experts. A collaborative approach between investors is key to making this a success, both to muster the resources necessary to make these changes and to present a unified voice which improves the chances of successful influence.
Investors across the world step up
Over the past decade, engagement has been almost exclusively led by developed-market investors, primarily in Europe and the US. Given the increasing introduction of responsible investment regulations, guidelines and practices, we expect to see active ownership become a much stronger feature of the local investor agenda in other markets this decade.
Decade of climate action
This decade is vital to achieving the Paris Agreement goal of limiting global warming to well below 2°C, and engagement here is evolving. Collaboration is taking place at an unprecedented scale through the Climate Action 100+ initiative, while investors are increasingly expressing their dissatisfaction with companies failing to address climate issues by voting against management resolutions.
The ‘S’ factor
The ‘S’ – social – of ESG has been historically difficult to define and quantify. But the COVID-19 pandemic has profoundly impacted society and shaken our assumptions about the way we live. It has also painfully exposed social and economic inequalities.
Against this backdrop, social issues are now among the most pressing issues for companies globally. It has also become clear that all elements of ESG are fundamentally linked and of equal importance.
This decade, we expect investors and data providers to overcome the challenges that have prevented the analysis and integration of social factors to step up their engagement, while carefully balancing interconnections with E and G issues.