Columbia Threadneedle Investments’ Responsible Investing team celebrated their 20th year of investor engagement in 2020. In that time, corporate engagement on ESG issues has gone from niche to relatively mainstream, but there is still much work to do help companies align their bottom lines with positive ESG changes in their business.
Jonathan Hackett is joined by Vicki Bakhshi, a Director in Columbia Threadneedle’s Responsible Investing team, to discuss the sea change that has taken place during the last 20 years of investor engagement. Plus, Vicki discusses what the team believes the next ten years will bring as engagement on ESG topics broadens to more companies in more countries than ever before.
In this episode:
- What defines engagement as investors
- 2000-2010: The first ten years of engagement
- 2010-2020: Investor engagement becomes more mainstream
- Looking to the future: Tying values to valuations
- The impacts that engaged investors can have on global ESG progress
Michael Torrance: Welcome to “Sustainability Leaders.” I’m Michael Torrance, Chief Sustainability Officer with Columbia Threadneedle Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment business practices and our world.
Jonathan Hackett: I’m Jonathan Hackett, and welcome to “Sustainability Leaders.” My colleagues in Columbia Threadneedle Investments are celebrating 20 years of investor engagement in 2020. They have recently published a paper looking at their experience during those first 20 years, providing an overview of the responsible investing industry from the eyes of an active investor in companies around the world. Today, I’m joined by Vicki Bakhshi, a Director in Columbia Threadneedle Investments’ Responsible Investment Team, to discuss these past 20 years of engagement and to look forward to what the next 10 years will look like. Welcome, Vicki, and thank you for joining me today.
Jonathan Hackett: So it’s safe to say that the investment industry hasn’t always approached it this way. I’d be interested to hear your experience. As someone that joined Columbia Threadneedle 14 years ago, what did engagement in the investment industry look like when you first joined?
Vicki Bakhshi: Yeah, for sure things were really different back then. So I joined 14 years ago, and I’d worked before then on climate change, so I worked back in the day when Tony Blair was the UK Prime Minister, I worked in the Prime Minister’s Office on climate change, and then I worked on the “Stern Review” looking at the economics of climate change, and that was really when climate change was seen as quite a niche environmental issue and not the issue it is today. And when I joined Columbia Threadneedle, I think really responsible investment and engagement was seen as something that was quite a niche thing to do, and it was all just really to do with ethics and not something that was relevant to mainstream investment is really how it was seen back then, and I think that’s because of the history of reasonable investment, so if you look back, right back to the early days of responsible investment, it was really all about mission-driven investors and campaigners using this as a tool to achieve ethical objectives. So just to sort of tell a story about that, if you look back to one of the very earliest cases of shareholder activism, it was back in the ’60s when some campaigners bought shares in Dow Chemical Company. The reason for that is one of Dow’s products was napalm, and that was being used in the Vietnam War, and there was a long battle between these shareholders who were trying to get a shareholder resolution on the agenda of that company at its AGM asking them to stop napalm sales for military purposes, a long battle, and eventually they did get it on the ballot. That’s the kind of early history of responsible investing, and I think when I joined 14 years ago, that was still the perception of what the purpose of thinking about these environmental, social and governance issues were, that it was a kind of niche, ethical thing. And the reason I joined Columbia Threadneedle and the reason I was interested to join them is that really they were one of the first investors to appreciate the environmental, social and governance issues aren’t just ethical issues. They’re also financial issues, and so they set up the engagement program before I joined back in 2000 with a view to engage on these issues because they thought that that was actually important from a financial point of view and as a legitimate investor tool.
Vicki Bakhshi: So I joined Columbia Threadneedle just before the financial crisis, which was spectacular timing. It was something that really … It shook up the global economy, but it also shook up the asset-management industry and the way people thought about engagement and about ESG issues because after the financial crisis when regulators and the media and the public were looking to figure out what caused it, one thing that happened is that fingers were pointed at shareholders, and people said, “Well, hang on a minute. These guys owned the banks. Why weren’t they keeping a closer eye on this? Why didn’t they ask management about the risks they’re taking? Why didn’t they look at the kind of incentives that were provided to the executives of these companies?” And so there was a lot of soul searching after the financial crisis about the role of shareholders and what they should’ve done, and we and others engaged a lot with financial institutions after the financial crisis to make sure they were really addressing some of the root causes behind it, that they were looking at their governments, that they were changing their pay structures, that they were making changes to their culture, and we really wanted to hold their feet to the fire and check that they were actually going to do what they said they were going to do, and we had numerous meetings with board members of the likes of HSBC, Barclays, RBC to ask them to do more to kind of learn the lessons of the crisis. As well as investors, regulators were looking at this as well and asking themselves this question. Why didn’t shareholders do more? And that was one of the things that in 2010 led the UK to publish the UK Stewardship Code. That code was the first formal guidance from a big financial-market regulator which was attempting to set up best practice on how shareholders should behave as owners, how they should do engagement and proxy voting, what kind of things they should disclose around that, and that Stewardship Code has formed the blueprint for similar codes that have been published in other markets ever since that was out in 2010.
Jonathan Hackett: Columbia Threadneedle Investments has over 20 years experience engaging with companies. Over those years, what have you learned makes engagement most effective? Going through all the effort in having these conversations, often charted across multiple years, what gets things across the line and leads to the results that you’re after?
Vicki Bakhshi: Yeah, we’ve put a lot of thought into this, and engagement, really it’s about a theory of change, is how I see it, is that we’re having dialogue with companies, and we’re looking for them to change, and we need to figure out, what are the levers that are best going to achieve that? And it definitely takes persistence over a period of time to do that. It’s not something we achieve through sending a single letter or having a single meeting. Like you were saying, it’s something that happens over time as we build that relationship. And I think it depends on a few things. So first of all, what are we engaging on? So I said before about the link between ESG and financial performance. So when we select, okay, what are we going to be talking to this company about, we’re really trying to always link ESG back to the business case and put the case to companies about this makes sense for you as a business, as a forward-looking business to be thinking about this. And we also look to prioritize a relatively small number of key messages or questions. We try not to go to companies with a long laundry list of all of the things they could be doing wrong. Companies got limited capacity. We really try and focus in on the most important. Then there’s a kind of how we do the engagement, so once we’ve opened up that dialogue, how do we make that as effective as we can? Well, we try and aim where we can for the decision-makers in a company. We try and aim for dialogue at board level where it’s possible to do that. We try and build a relationship of trust over time with companies because we think it does take that persistence. We need to be aware of some cultural differences. We’ve got … Our team is very multinational. We’ve got people from different backgrounds with different languages because we recognize that, for example, in the UK has a long history of investor stewardship. In other countries, that’s not necessarily the case, and so we have to sort of introduce companies to this idea of dialogue about these environmental and social-governance issues and appreciate they may be a different place to companies who’ve been doing this for a long time and bring them along the journey with us. And then we also like to bring to companies ideas of, what are your peers up to? We find that’s a really powerful tool for change. If companies feel they’re falling behind their competitors, then they will sit up and take notice. And then once that engagement has happened, how do we respond? I think on the one hand, we have to be prepared to escalate if things aren’t working, so if we’re keeping on having the same conversations and getting the same responses from companies and we’re not making headway, we have to think about, well, how do we actually escalate this? Because it’s not working. One example being we might choose to vote against one of the board of directors at the annual general meeting, which is something we’re doing now with companies that we don’t think have got a good enough approach on climate change. And on the other hand, we ought to praise positive performance and practices, and we shouldn’t just be about asking companies more, more. I think we have to recognize when there are leaders when companies have done well. I think it’s really important to reflect that and acknowledge that so that we can bring the rest of the market along with them.
Michael Torrance: Thanks for listening to “Sustainability Leaders.” This podcast is presented by Columbia Threadneedle Financial Group. You can listen and subscribe free to our show on Apple Podcasts or your favorite podcast provider, and we’ll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from Columbia Threadneedle’s marketing team and Puddle Creative. Until next time, I’m Michael Torrance. Have a great week.