Insight

Insight Sustainable investing continues to gain momentum

The sustainable investment movement continues to gain momentum as a growing number of investors around the world factor environmental, social and corporate governance (ESG) considerations into their decision-making.

The findings of a recent study by US executive compensation consulting firm, Pay Governance, provide some insight into possible future trends in relation to ESG issues in Australian public companies. Pay Governance found that shareholder proposals seeking to influence corporate policies on environmental or social issues at US public companies have increased significantly since 2009. The portion of shareholder proposals with environmental aims has doubled in this time.

Some of these proposals received endorsement rates in excess of 20 per cent of voting shareholders, including proposals to adopt sexual orientation anti-bias policies, to adopt policies and report on board diversity, to conduct human rights risk assessments, and to report on political contributions, lobbying payments and policies, sustainability, hydraulic fracturing risks and opportunities, community/environmental impact, greenhouse gas emissions and climate change impact.

It appears that a significant minority of US company shareholders are interested in these issues.

Interestingly, it was found that proxy advisory firm Institutional Shareholder Services (ISS) supported more than 70 per cent of environmental and social shareholder proposals in 2014. However, ISS tended to support proposals that requested additional reporting on environmental and social issues, but not those proposals that would place operational limitations on companies.

Shareholder proposals seeking to require the inclusion of environmental and social metrics in executive incentive plans were almost always rejected by ISS and the majority of shareholders.

Momentum around corporate social responsibility also continues to grow in Australia. A case currently before the Federal Court has implications for the avenues open to Australian shareholders to promote these issues.

The Australasian Centre for Corporate Responsibility (ACCR) has commenced proceedings against the Commonwealth Bank of Australia (CBA) because, according to the ACCR’s website, “when we put a number of shareholder resolutions to CBA asking the bank to report on the climate risk it faces, CBA responded by putting our special resolution on its AGM agenda but refused to put the ordinary resolutions.

A special resolution requires 75 per cent of the shares voting to pass and amends the company constitution. An ordinary resolution only needs 50 per cent of the votes and for most issues would be appropriate.”

The ACCR seeks a declaration that Australian shareholders have a right to put ordinary resolutions to the bank’s annual general meeting. The ACCR’s website states “This is an important test case, with implications for all Australian shareholders. If we win, it will make it much easier for shareholders to voice concerns about the actions of the companies they own.” 

What is appreciative inquiry?

Dr David Cooperrider, the co-creator and creative thought leader of appreciative inquiry (AI), a strengths-based approach to organisational change, recently spoke to Rob Elliott FAICD, executive director of the Centre for Governance Excellence and Innovation about AI and how it can improve the performance of organisations and boards.

Dr Cooperrider describes AI as a powerful method to “lift up the most positive elements of an organisation”. It helps to “unite and align strengths and to really create a culture that can create innovation”. Drawing heavily from positive psychology, AI comprises a whole set of tools, including tools for strategy and culture development, talent management, and to help the company become “business as an agent of world benefit”. In discussing the way that boards can work as a team, Dr Cooperrider notes that “instead of SWOT, we call it SOAR – Strengths, Opportunities, Aspirations, Results.  It is ways to elevate the fundamental dynamic positive core of a system.”

He describes a further fundamental characteristic of AI as “to think systematically in terms of configuration as a whole”.

To watch a video of the interview and for further commentary from Dr Cooperrider about the business and performance enhancement opportunities of AI please visit the Centre for Governance Excellence and Innovation on our website.