Lily Tomson: How asset managers can improve the conversation with charities

22 Jan 2019 Voices

Asset managers and charities could benefit from clearer communication on responsible investment, writes Lily Tomson.

Imagine a grant giving foundation – let’s call them Foundation X - whose mission is to prevent catastrophic climate change. 

In order to raise vital funds for their grant giving and operational activities, Foundation X, like many other charities, has assets which they invest. These investments are usually managed by asset managers, often trading stocks and shares. These stocks and shares fund companies, whose activities have a real impact on society and the environment. 

Foundation X wants to answer the questions: What impact are our investments having on the environment? Are these impacts aligned with, or contradicting, our charitable mission? Are they invested in any of the carbon majors, or companies who are lobbying against climate change solutions and regulation? But it isn’t sure where to start.

As charity investors, it’s important to answer these questions, and this involves having a conversation with your asset manager(s).

However, this may be easier said than done. Charity investors and fund managers are often on different pages when it comes to impact and returns. This means that information about the impact of your investments provided by fund managers may be too much, too little, or simply not relevant to finding out what impact your investments are having and whether this is aligned with your charitable mission. Therefore, while both asset owners and their managers aim to reach positive outcomes, this can be difficult to achieve. 

What charity investors expect from their asset managers

Hoping to improve the conversation between charity asset owners and their asset managers, members of the Charities Responsible Investment Network (CRIN), coordinated by ShareAction, have drawn together practical expectations that they have of their managers around the process of investing responsibly. The report – Improving the Conversation: What Charity Investors Expect from their Asset Managers – proposes a new way for charity asset owners to talk to their managers about their responsible investment processes.

The paper firstly covers disclosure and transparency – core aspects of the responsible investment process – with a focus on proxy voting and engagement. It then explores leading practice in the industry. Throughout, it provides specific examples to ask fund managers about. 

For example, proxy voting decisions on issues such as pay, climate and board structure are important pieces of evidence of asset managers’ commitment to ESG issues. The report therefore recommends that charity asset owners ask their managers to publish rationales for voting decisions on all controversial votes.

Voting to keep a company’s governance in check is an essential prerequisite to financial outcomes in the long term. However, a recent report produced by ShareAction for CRIN found that some asset managers commonly used by charity investors have a tendency to shy away from voting against company management. Providing rationales for voting decisions on controversial votes provides accountability to the asset owner on how the manager’s voting policy is being implemented.

By publishing full proxy voting decisions, asset managers provide transparency and accountability to their clients on; which companies they invest their clients’ money in; and how they vote on issues such as climate change at company AGMs on their clients’ behalf. A survey by ShareAction for CRIN of commonly used charity asset managers found that only 64% disclosed their full proxy voting decisions. Of these, only a third did so in an easily searchable online system, which enables clients to quickly and easily access voting information.

Improving the conversation

ShareAction hopes that these tangible, practical asks will enable charity asset owners and asset managers to have clearer communications on the issues that matter.

Improving the conversation with your asset manager is vital to understanding what impacts your investments are having, and taking steps to align these with – or help further - your charitable mission.

Director of longstanding CRIN member, Friends Provident Foundation, Danielle Walker Palmour says “As endowed foundations, most of our assets are actually managed by someone else while we focus on the 'charitable' elements of our mission. We hope that improving the conversation with our asset managers will ensure that our investments are managed in line with our charitable focus”.  

For example, by drawing on the principles outlined in the report, Foundation X would be able to determine what companies their asset manager invests in, and how their votes are used at company AGMs. With this information, Foundation X can use their invested assets as a tool to further their charitable mission by asking their asset manager to file a resolution, or vote to support an existing one, requiring companies to set science-based targets to reduce their emissions. 

CRIN members will use this paper to improve the outcomes of conversations on responsible investment with current and prospective asset manager(s). We look forward to talking with other charity investors who are doing the same.

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