Byline: Alexis Cheang, Head of Responsible Investments, Mercer Pacific
Active ownership matters
Active ownership is different to activism as it focuses on long-term sustainable value creation. Activism usually focuses on achieving specific goals in the near-term, which may or may not lead to value creation.
In the 2000s, shareholder activism came from the likes of Carl Icahn - an American businessman, investor and philanthropist - and activist hedge funds agitating for board seats in order to change capital structures and executive management positions.
Today, activism is often defined by environmental activists looking to address climate change, or social activists pursuing human rights.
Active ownership is about influence
It matters to asset owners and investment managers as we are stewards of the assets entrusted to us. It is not our money. We’re entrusted with it in order to deliver an investment return and positive long-term outcomes for our members and beneficiaries.
It is our role to be good stewards of the assets entrusted to us, this includes using our voting rights and encouraging companies towards sustainable value creation.
A shareholder vote is an opportunity to express a point of view, whether to express content with a company’s board or management, or to signal concerns and the need for change.
At Mercer, we think it’s important that shareholders take up this right.
In 2019, superannuation funds, including our Mercer Super Trust, voted at nearly 4,000 shareholder meetings. Importantly, we voted against management recommendations on almost 1,500 proposals.
Alongside voting, we also think it’s important to engage.
Since 2006, the Principles for Responsible Investment (PRI) coordinated 1,671 different collaboration engagements worldwide.
These engagements focused on a specific company or industry with the aim of achieving environmental, social or governance changes and improvements. Of those collaborative engagements, they targeted 964 companies globally and involved 225 different investment organisations in 63 countries.
That’s a lot of engagement. But does it make any difference, and is it worth the time?
Research on the value of active ownership by the University of Cambridge shows an increase in profitability (measured by return on assets) when shareholders have an engagement dialogue with listed companies that actually leads to more sustainable business practices.
At the same time, these companies saw an increase in ownership by those investors that were engaging with them, where investors felt like the engagement was moving forward and showing progress.
At Mercer, we strongly believe in the role of active ownership in realising long-term shareholder value. Our investment beliefs states that active ownership – exercised through voting and engagement – provides diversified investors with an opportunity to increase the value of companies and markets.
We invite you to talk to us if you want to know more. Visit mercer.com.au/responsible to book a meeting with a Mercer Responsible Investment specialist.
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