Companies will face rising pressure to improve their environmental, social and governance (ESG) behaviours as investors deploy new tools to influence them, according to NN Investment Partners (NN IP) in its latest Responsible Investing Report.
Until recently, investors have had limited scope to use voting to influence specific ESG policies. This is set to change as companies will enable investors more to vote on their sustainability policies at annual general meetings (AGMs). Among other topics, companies will begin including a “say on climate” and “say on diversity” on their AGM agendas, alongside the existing “say on pay”. Investors will also have more ways to influence policies related to non-financial goals through engagement, the report says.
NN IP’s Responsible Investing Report 2020 also identifies four other sustainability trends that will accelerate in 2021 and beyond.
Investors will increasingly recognise the need for urgent climate action. Satellite imaging showed an exponential decrease in CO2 emissions in the initial phase of the Covid-19 pandemic. This highlighted the positive effects of less (airline) travel and what can be achieved if we take action. The 2021 United Nations Climate Change Conference will further increase the sense of urgency to tackle climate issues
There will be a growing focus on financing positive impact. Investors will demand increasing transparency on the impact of investments, so asset managers must improve their reporting and align their data processes to meet clients’ needs
Cross-industry collaboration will increase. Asset managers will increasingly join cross-industry coalitions to drive change through engagement and dialogue. By teaming up with social and governmental organisations, investors can have more impact on concrete topics that reflect clients’ priorities
Regulatory action will reshape the industry. This trend will mostly focus on Europe for now through the EU’s Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy, but it will also affect companies elsewhere as European investors demand more disclosure from their investments around the world. It will become easier for clients to compare products and gain more insight into how their money is used and for what purpose
Adrie Heinsbroek, Chief Sustainability Officer, NN Investment Partners, comments: “Two factors are having the biggest impact on driving change in sustainable investing. The first is the Covid-19 pandemic and the second is the EU’s new framework of sustainable finance regulations, which will change the investment landscape and cause capital to move to different places in 2021 and beyond.”
By the end of 2020, NN IP had expanded the integration of its stringent ESG criteria into 74 per cent of its assets under management (AuM), versus 68 per cent in 2019. The company aims to integrate ESG criteria into 80 per cent of AuM by 2023. It is a signatory to the Principles for Responsible Investment (UNPRI), from which it received the top score of A+ in 2020.
As part of its positive engagement programme, NN IP had 1,269 dialogues with 669 companies and 17 sovereigns in 2020. The total number of dialogues was significantly higher than in previous years (representing an increase of 91 per cent from 2019), reflecting NN IP’s increased efforts and improved efficiency. It also voted on 35,015 items at 3,053 AGMs in 60 countries, versus 31,775 items at 2,752 company meetings in 2019. NN IP is ranked one of the top 10 best performers on voting for climate and social action by ShareAction.
Heinsbroek adds: “To maximise our influence as an asset manager, we must continually look ahead. We have identified several focus areas for engagement in 2021 and beyond, including decent work, the social inequalities highlighted by the Covid-19 pandemic and our continued engagement with sovereigns to better assess risks and opportunities.”