Cheshta Dhingra talks about how Stewardship in investing has allowed sustainability and profitability to coexist.
In today’s dynamic investment world, where fortunes are made and futures are shaped, investor activism has become a potent force for change. This narrative is woven with engagement, advocacy, and sometimes, the strategic decision to disinvest. Within this complex tapestry lies a profound lesson: every action, whether successful or not, carries the potential to catalyse transformation and propel the journey towards responsible capitalism.
A crucial question lingers in the minds of astute investors: Where does the good go? This isn't merely a philosophical inquiry but a practical pursuit of maximising long-term value while safeguarding our common economic, social, and environmental assets. Stewardship, akin to a seasoned navigator charting the course through stormy waters, embodies this pursuit. It's about investors using their influence to steer towards sustainable outcomes.
Engagement emerges as a potent instrument in the steward's toolkit. It fosters dialogue between investors and the entities they invest in. Through engagements, investors articulate their expectations, championing improved environmental, social, and governance (ESG) practices and transparency. These dialogues, whether conducted individually, collaboratively, or facilitated by service providers, are where the alchemy of positive change is forged.
However, stewardship extends far beyond boardroom negotiations. It encompasses a holistic approach, reaching out to policymakers, contributing to public goods, and engaging in discourse that amplifies stewardship goals. Yet, amidst this pursuit, a crucial question arises: Does the good we seek truly manifest in the world? The answer lies not just in the intentions behind stewardship actions but in their tangible outcomes. While divestment may offer a quick escape from contentious issues, true stewardship demands active engagement. It's a commitment to effecting meaningful change, even when the currents grow turbulent.
Consider the case of significant investors like Legal & General Investment Management (LGIM) and Nest advocating for fair wages at Sainsbury's, one of the UK's leading supermarket chains. Their goal was to ensure that all workers receive the "real living wage" of £9.90 per hour. This move, driven by a recognition of the disparity between corporate profits and worker welfare, exemplified the power of investor activism to address pressing societal issues. Although Sainsbury's management swiftly responded to the Living Wage resolution with a counter-recommendation, resulting in the resolution not passing, the public scrutiny and pressure generated catalysed a domino effect within the industry. Other leading supermarket chains, like Tesco, proactively addressed the issue.
Amidst the challenges of unsuccessful engagements, there emerges an opportunity for reflection and strategic recalibration. Consider LGIM's journey with Mengniu Dairy, a major food producer with a significant role in climate change and agricultural commodity-driven deforestation. Initially, LGIM had concerns about Mengniu Dairy's climate strategy, particularly the absence of a deforestation policy and uncertainties surrounding emissions data and targets. Despite multiple engagements since 2019, progress has been limited. LGIM took decisive action by voting against the re-election of the Chair and placing Mengniu Dairy on its disinvestment list in 2020. However, engagement persisted, and over time, Mengniu Dairy introduced a robust deforestation policy, developed lower-impact products, and committed to carbon neutrality by 2050. Encouraged by these developments, LGIM reinvested in Mengniu Dairy, underscoring its dedication to ethical leadership and responsible investing.
At Timeline, we employ a rigorous selection process steeped in responsible stewardship. With a sharp focus on ESG factors, we navigate the vast investment market, using stringent criteria to pinpoint funds that uphold ethical principles. This approach ensures that only funds embodying the values outlined in our ESG overview are considered for inclusion. Beyond selection, we evaluate portfolio performance against peers using efficient frontier charts, showcasing competitive returns while upholding ethical standards. Through this journey, our practices demonstrate that sustainability and profitability can coexist, charting a course towards a future where investments serve as catalysts for positive change.
Unlike traditional "ethical" portfolios, which often adopt a rigid exclusionary approach, our strategy is characterised by nuance and pragmatism. Instead of blanket exclusions based on industry-wide reputations, we allow our underlying fund managers to evaluate companies on a case-by-case basis, considering their specific policies and practices. This active approach broadens the investment universe, enhances opportunities for diversification, and minimises costs.
So, where does the good go amidst the ebb and flow of investor activism? In the ever-evolving landscape of stewardship, the answer lies in the collective pursuit of a more equitable and sustainable future. Every action finds resonance in this pursuit, where investments serve as catalysts for positive change. It's a journey marked by moments of triumph and challenge, where each step contributes to the broader tapestry of responsible stewardship. As investors navigate the currents of change, they chart a course towards a world where profits align with principles, and success is measured not only in financial terms but also in the well-being of individuals and society at large.
It’s a ship that keeps on sailing! 🚢