We use our influence as a shareholder, working alone and with other investors, to encourage investee company behaviour change and wider systems change that support our objectives. We also use our influence as an asset owner to engage our ‘market-rate portfolio’ asset managers and the market more broadly on: responsible investment; environmental, social and governance (ESG) issues; and shareholder engagement with investee companies.
Trustees have determined three priority themes for our current investor and shareholder engagement programme:
1. Building economic resilience through community energy and engaging the utilities market
We wish to see utility companies transition to sustainable, resilient and <2C compliant business models that support community and citizen renewable energy generation, storage and demand response. Our investor and company engagement to date includes:
- Publishing a report with Forum for the Future ‘Insights from energy industry and political leaders on the rapidly changing UK energy system’, with contributions from several former CEOs of utility companies, ex energy ministers and senior civil servants.
The report explores the trends and risks within the sector, and concludes that incumbents need to embrace the transition to decarbonised, decentralised and democratised energy (the ‘3D transition’), and develop new business models if they are to have longevity; and that this transition is being driven as much by economics, technology and innovation as it is by government policy.
- Commissioning a report from InfluenceMap ‘Gridlock in UK power markets: How Big Six capture of the regulatory process poses investor risk’, which examines regulatory capture in the sector and scores the public policy interventions of the ‘Big Six’ utilities with regard to the decarbonisation, decentralisation and democratisation of energy.Conclusions include that business models appear to be based on the current ability to maintain the status quo via regulatory influence, and that none of the big six’s lobbying activity is sufficiently aligned with the ‘3D transition’, indicating they may not be adequately preparing for the market disruption they face.
- Holding an institutional investor event on ‘utility company resilience to energy market transition’, with a view to mobilising collective shareholder engagement of the ‘big six’ utilities. The event established the sector risks arising from failure to adapt to the ‘3D transition’, and the need to incorporate decentralisation and democratisation into existing collective engagement around decarbonisation. The event was supported by the Institutional Investors Group on Climate Change (IIGCC).
2. Addressing inequality through more transparent executive pay structures
- An objective is for UK listed companies to publish the ratio between chief executive and median worker pay. We made a submission to the government green paper consultation on ‘corporate governance reform’ calling for executive pay ratio disclosure. On 29 August 2017, the Government announced that mandatory reporting will be introduced.
- We are one of 79 investor signatories to the ShareAction led ‘Workforce Disclosure Initiative’, which is calling for transparency from 75 global companies on how they manage workers, including on executive pay ratios. The ultimate goal is to improve the quality of jobs in the operations and supply chains of multinational companies.
- We are in the process of supporting the St Paul’s Institute ‘Fair Pay for Fair Work’ programme, which will examine draft UK legislation on mandatory pay ratio reporting, produce a guide for investors on how to read and question the numbers, and using the convening power of St Paul’s Cathedral, undertake a programme of roundtable discussions and public debate about pay ratios and fair pay generally.
3. Asset manager engagement
- In 2017, we reviewed our ‘market-rate portfolio’ looking at: responsible investment policies; integration of environmental, social and governance (ESG) issues into stock selection; shareholder voting record; shareholder engagement; and public disclosure. Subsequent asset manager engagement prompted the removal of companies from the ‘investable universe’ of pooled funds in our portfolio and divestment to the value of £2.8 million.