The events of 2020 have triggered a sea change in the way companies view their employees and the communities they serve. Such perspective is not new to us: since the inception of Reynders, McVeigh, we have voiced the importance of what is now called stakeholder capitalism – the need for companies to consider, and ultimately benefit, all stakeholders – including employees, customers, and the ecosystems in which they operate.
Shareholder engagement is critical to our work as ESG investors and to our role as stewards of our clients’ capital. The Proxy Season provides a formal process for our shareholder engagement efforts to hold the companies we invest in accountable and ensure that they are working to exhibit both potential for financial returns and positive environmental, social, and governance (ESG) footprints. Given the current COVID-19 environment, we were not surprised by this proxy season being dominated by an even greater emphasis on ESG–related factors and how they are tied to long-term strategy.. In January, the EY Center for Board Matters anticipated that “ESG matters to build resiliency amid continued disruption” would be the focus for many investors.
As you are most likely aware, “ESG” appears to be everywhere. As a Firm, we could not be more pleased. We have always prioritized the analysis of material non-financial factors in investment decision making and are excited that more investors are joining us. In other words, we were using ESG before the term “ESG” existed, and we often referred to it as understanding a company’s DNA.
ESG is where we believe liabilities exist, particularly in the areas of E (environment) and G (governance). Companies that are not accounting for climate change risk and operating in an ever-increasingly resource-constrained world, in our opinion, are not positioned for long-term success. Similarly, we must be confident that managements are forward-thinking and more importantly, transparent. In this most recent market tumult, similar to the crisis of 2008, there was simply too much leverage in the system. We must have confidence that balance sheets are strong and the information we are provided is genuine.
The S (social) has traditionally been more difficult to define, but has grown in prominence during the pandemic. The same 2020 Proxy Preview noted above found “nearly two-thirds (64%) of investors cited talent management, meaning the broader workforce, as critical to strategic success over the next three to five years.” Human capital management and workforce policies are, and always have been, core to our research and social assessments. As we have said before, we believe that any company is only as good as its people.
As the 2020 Proxy Season draws to a close, we are encouraged by the successes we accomplished in the 2019 Proxy Season, but we know there is more work to do. We will continue to collaborate with companies and other investors to ensure we are identifying potential risks, resolving those risks, and seeking opportunities to benefit our clients and their beneficiaries.