Active investor engagement with companies on environmental, social and governance (ESG) issues produces results, according to a report released by Inhance Investment Management.
Inhance, a socially responsible mutual fund company and a subsidiary of Vancity credit union, created a report that lays out how it engaged with companies on ESG concerns over a two-year period.
“We use our rights as shareholders to gauge company capacity to deal with emerging issues,” said Dermot Foley, the firm’s vice president of strategic analysis. “As active shareholders we need to know how our holdings will be impacted by risks arising out of a company’s environmental performance, social responsibility or corporate governance practices. Encouraging broader disclosure in these areas is critical to generating return on responsibility.”
The report, “Dialogue to Deeds,” describes shareholder resolutions filed by Inhance, how companies responded to them and also includes a more general overview of Inhance’s strategic approach to engagement as a risk management tool.
The key areas that Inhance reports on are climate change, sustainability, environmental performance, governance, health, safety and diversity.
The investment management firm says it combines its financial analysis of a company with acknowledgment of the importance of attracting talent, retaining customers, pre- serving capital and growing business. It notes: “The best companies have their eyes on the horizon – looking for new opportunities and avoiding unnecessary risks.”
The firm points to the ways in which environmental, social and governance risks can impact the value of a specific company. “Most analysts have historically underpriced such risks until they emerge as a headline event and shock the price of a company’s stock,” reads the report. “Examples include environmental spills, consumer boycotts, product recalls and regulatory investigations.”
To combat this, Inhance says responsible investors must look at how companies are prepared to manage risk.
Because Canada’s banks are such a large part of the economy, Inhance has worked with them to improve ESG practices. It said it has filed resolutions, met with board members and senior staff and worked with other investors on key risk areas like climate change. It notes that most of the banks have adopted the Equator Principles, which are guidelines for reducing the social and environmental impact of projects.
As an example, TD Bank Financial was the only major bank in Canada that had not adopted the Equator Principles by 2007. At that time, Inhance filed a resolution in regard to this issue. Ultimately the bank’s board agreed to adopt the principles and also developed an environmental policy, which addresses forest biodiversity, climate change, aboriginal people and the bank’s environmental footprint. According to the Inhance report, this set a new benchmark for Canadian banks.
The report also stresses the importance of greater public disclosure and the power that shareholders have to increase the flow of information. For example, Inhance sent a shareholder proposal to Sun Life Financial requesting reports on environmental, social and governance risk disclosure and sustainability. The company agreed to provide a definitive statement on sustainability in the 2007 Public Accountability Statement, according to the Inhance report, and is working towards fully reporting on impacts and practices.
“By increasing their reporting on sustainability and environmental performance companies can set new benchmarks for comparable industries and help transform the entire sector,” reads the report. “Shareholder engagement provides an opportunity to advocate for greater public disclosure of information on company policies and practices for addressing environmental, social and governance risks.”
Inhance is the manager of the Vancity Circadian Funds and Inhance Mutual Funds.
Inhance reports on its shareholder resolutions
Firm looks at how companies are prepared for emerging risks
- By: Regan Ray
- May 1, 2008 December 14, 2017
- 13:15