The great power of voting

The asset manager LGIM is one of the largest asset managers in the world. On Wednesday he will present his tenth Active Ownership Report – and increase the pressure on companies to be more sustainable.

As shareholders, asset managers are increasingly speaking out against companies that burn coal, such as Duke Energy.

Dhe large fund companies are playing an increasingly important role in the demands relating to climate, social issues and the principles of good corporate governance, which are abbreviated to the three letters ESG in the financial sector. Last year alone, the world’s 500 largest wealth managers had more than $ 104 trillion. This is the result of a study by the Thinking Ahead Institute on behalf of Willis Towers Watson.

As major shareholders of many companies, you can thus exert a significant influence on the sustainability orientation of the corporations. Votes at general meetings are also used as a means of pressure. You can then vote against the management or approve certain ESG shareholder motions.

“Active Ownership” – active ownership

With assets under management of 1.7 trillion dollars, the British fund company Legal & General Investment Management (LGIM) is also one of the largest asset managers in the world. On Wednesday the company publishes its tenth “Active Ownership Report”. In the report, the company discloses data on active ownership, also known as “active ownership” in financial jargon. Investors are actively involved, for example, to promote the reduction of CO2 in the portfolio or the observance of human rights.

“We have great voting power,” says Sacha Sadan, Director at LGIM. In the pandemic year 2020, LGIM voted against 4,700 company boards due to governance concerns and increased its commitment, i.e. the dialogue with companies regarding sustainability, by 21 percent. You take your voting duties very seriously and you also practice what you preach, said Sadan.

But that is not always the case. The UK think tank Influence Map is tracking how businesses and the financial sector are impacting the climate crisis. Support for climate resolutions in 2020 has increased overall compared to the two previous years. But contrary to the trend, large American asset managers in particular, including Blackrock, Vanguard, Capital Group and Fidelity, refused to support 75 percent or more of the climate resolutions.

LGIM wrote to almost 500 companies with poor climate results, according to the report by the British asset manager. Companies that do not comply with minimum standards in the future should be sanctioned by voting. In addition to climate concerns, the “S” of ESG has come to the fore in the pandemic, says Sadan, for example when it comes to the question of whether board members should be paid bonuses if the company has received aid from the state or has cut or suspended dividends. At the end of last year, the board also voted against the parent company of British Airways and Quantas due to the high level of compensation on the board.

Sanction German companies

In addition, governance is playing an increasingly important role in sustainability. Last year, LGIM voted against 411 companies in which the supervisory board and management board were run in one. Corporate executives shouldn’t lead the supervisory board, says Sadan. This is contrary to the interests of the customers.

In Germany, however, LGIM wants to sanction companies in the current year in which supervisory board members are elected for more than four years. The votes of all companies are listed in detail on the LGIM website. You have around 3,000 institutional customers, says Sadan. You cannot demand more transparency on the one hand and not offer it yourself on the other.