Issues surrounding sustainability and diversity will be the main drivers of shareholder voting decisions in the upcoming AGM season, according to data from the Investment Association, as investors take a more active approach to environmental, social and governance (ESG).
Businesses have addressed their approaches to ESG issues as ethical issues have become increasingly important to shareholders in recent years.
In a survey published by abrdn at the start of the year, 53% of participants said that making a positive impact was an important factor in how they invest and 32% claimed they would be willing to receive lower returns for holdings they care about.
Asset managers have adapted to this move launching numerous ESG funds and adding sustainable mandates to existing portfolios.
Invesco rebranded its UK Companies fund to the Sustainable UK Companies fund in January to align more closely with investor interests, and Octopus launched its highly anticipated venture capital trust as an ESG.
However, there is pressure on these firms to deliver on their sustainability and ethical promises by holding companies to account. One way to do this is through their voting rights.
Andrew Ninian, director of stewardship and corporate governance at the Investment Association, said: “Climate change and the transition to net zero is not an issue which can be left for future management teams or boards, investors wish to see the actions the current leadership will be taking, and investment managers will be watching closely this AGM season to ensure they are doing just that.”
These investor priorities will be compared with companies’ goals by the Institutional Voting Information Service (IVIS) in order to give shareholders the best advice on how they should vote.
Diversity in high powered roles at companies will also be big consideration for voters, with the IVIS placing FTSE 100 businesses that failed to meet the Parker Review target of at least one ethnically diverse board member by 2021 on a red list.
Similarly, FTSE 250 companies that have not disclosed plans to meet their goal by 2024 will be categorised as amber.
A survey conducted by the Department of Business in March last year to track the progress of the Parker Review targets found that 124 out of the 998 board positions for FTSE 100 companies were held by 188 ethnic minority directors, up from 95 the year before.
However, only five of the ethnic minority directors occupied the position of chief executive (CEO) while none of these were women.
Ninian added: “While good progress has been made with greater female representation on boards and in senior leadership across the FTSE, investment managers now want to see this positive momentum include ethnic minority representation on boards, and are calling on all FTSE 100 companies to meet the Parker Review target this year.”
Diversity and sustainability may be at the forefront of shareholders minds according to the Investment Association, but Mark Nichols, manager of the Jupiter European fund said the area that has garnered most of his attention over the past year has been remuneration packages of firms that pay their executives too highly.
With the UK emerging from the pandemic and inflation ramping up the cost of living, he said that pay increases on an executive level that do not corelate with the average employee should not be tolerated.
Alex Savvides, manager of the JOHCM UK Dynamic fund, said investors should also use their voting rights to combat aggressive takeover approaches, noting that he had fought “some lonely battles” to keep his firms from being taken private, or to earn a fairer price for his shares.
“I’ve had the same mindset when the UK Dynamic fund was £200m to now when it is over £2bn. You don’t hide behind ‘Oh, I can't do this because our voice isn't big enough’. Once you start asking questions and engaging you will be amazed at the response you get from management,” he said.