Responsible Future

Active investing goes beyond stock picking

Marie-Laure Schaufelberger, Head of Group ESG & Stewardship

Active investing goes beyond stock picking

Implementing the desire to influence positive change through investment decisions is hardly new. Religious organisations started this hundreds of years ago by excluding “sin stocks [1]” from their portfolios. Since then, exclusions became a common means of directing capital away from companies whose activities were misaligned with an investor’s values or interests. However, given the nature of capital markets, such exclusions do not necessarily achieve their intended outcome. Avoiding or selling an oil company’s shares does nothing to alter the demand for petrol.

But investors do have other, more effective tools at their disposal, especially in collaboration with other investors. Shareholders are given the opportunity to vote on and put forward resolutions at least once per year. Bond and stock investors alike can engage directly with company management teams and government leaders to influence decision making. And these types of engagement are also available to passive investment managers that replicate indices, although they lack the option to exit the issuer, thereby limiting their escalation strategy options.

'True active management offers multiple levers through which investors can engage with both public and private-sector leaders whose decisions impact our societies and planet.'

Once merely the work of fringe, activist hedge-fund managers seeking to influence financial performance, shareholder activism is gaining traction across all investor types and motivations. It has been broadly recognised that achieving the Paris Agreement [2] commitments and UN Sustainable Development Goals requires both the private and public sectors to take action now. To combat climate change, the Climate 100+ investor engagement initiative was launched in 2017 and now has over 450 investor signatories. BlackRock, the world’s largest asset manager and well-known for its passive investment franchise, joined the initiative in 2020 – a testament to just how mainstream shareholder engagement around environmental issues  has become. Climate 100+ focuses on ensuring that the world’s largest corporate carbon emitters reduce their emissions in line with the Paris Agreement goals. It is a pertinent example of how investors can act collectively to effect positive change. 

Engagement doesn’t have to stop at the securities level either. In 2018, Pictet together with Swiss Sustainable Finance, wrote an open letter pressuring index providers to exclude controversial weapons from their mainstream benchmarks. The campaign has since garnered 176 investor signatories around the world, representing nearly USD 10trn in assets under management. This has led to very fruitful exchanges with both index providers and signatories opening the door to future dialogues on minimum ESG standards for financial products across many sectors.

While there certainly remains a place for exclusions, true active management offers multiple levers through which investors can engage with both public and private-sector leaders whose decisions impact our societies and planet.

[1] Typically refers to weapons, alcohol, gambling, or tobacco sectors

[2] Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.

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