Globally, there is growing interest in responsible investing practices, particularly in the integration of environmental, social, and corporate governance (ESG) factors into investment management.  Increasingly, fund managers are beginning to see corporate governance considerations as another way to add value to the overall investment process. This stems from investors’ belief that stronger governance practices will be reflected in higher security prices through a combination of lower discount rates and higher cash flows.

There are three steps fund managers will take on behalf of their clients to influence corporate governance policy.

  1. Proxy voting: This is the act of exercising voting rights as a shareholder. Voting is the main tool for influencing the board of directors elected to manage a company on shareholders’ behalf. Fund managers who represent large institutional investors control votes that can make a difference to the outcomes of meeting proposals. Shareholders should consider the costs associated with voting and vote in instances where the expected economic benefit of voting outweighs the costs, for a given strategy. Shareholders should not vote in markets that have share-blocking, re-registration or other practices which impair the shareholder’s ability to sell voted shares.
  2. Engagement with management: Large shareholders may talk directly with the management of companies to gather more information about specific meeting proposals or when they see ways to improve corporate governance. They will tell management how they plan to vote if management does not improve. In many situations, that may mean withholding support for their directors, which is something most companies take very seriously from long-term, large shareholders.
  3. Industry participation, surveys, and events: This would involve signing up to the United Nations’ Principles for Responsible Investing (UNPRI); Conducting internal training sessions on responsible investing and the integration of ESG considerations into financial decision-making. By participating in industry surveys, round-table discussions, and ad-hoc subject matter calls with proxy research houses, shareholders we may have the opportunity to influence overall policies and ensure their voice is heard on a wider platform.