When we launched Morrow Sodali’s Institutional Investor Survey 2020 with them, at a joint event in St James’s, London at the end of January, public gatherings such as these were still the norm, and we had no conception that by the time of publication in March, COVID-19 would have become the overwhelming concern for government and business. The report revealed that environmental, social and governance (ESG) risks and opportunities are playing an increasingly important role in investors’ investment decisions and their evaluation of portfolio companies. While the 2020 AGM season has undoubtedly been rocked by COVID-19, not least by the very fact that shareholders are currently unable to attend AGMs in person, it is worth reviewing what the 2020 AGM was expected to hold as companies’ responses to COVID-19 will undoubtedly be viewed through the ESG prism.
The survey highlighted expectations that ESG would have a direct impact on shareholder meetings, proxy voting, engagement and the various means by which investors fulfil their oversight and stewardship responsibilities. Climate change topped the list as the prime ESG concern for investors. The survey also showed the importance of stakeholder engagement, with investors expecting to be privy to the inner workings of the board and concerned with how companies and boards respond to shareholder concerns and negative votes about executive remuneration. Many investors also expressed a need for more explicit non-financial information, which they consider as an important indicator of corporate culture, integrity and sustainability. Investors were particularly keen for companies to clearly show the connection between climate change factors and their financial risks and opportunities.
ESG remains an important issue that governance professionals must lead on. As the winner of this year’s Tom Morrison Essay Prize, Marieclare Peter, a student of the Institute, notes in her essay about ESG, investors are challenging companies to act in accordance with ESG principles and standards in order to be regarded as trustworthy. Marieclare, who is assistant company secretary at Konexo, a division of Eversheds Sutherland, concludes ‘Overall, if a company is to proactively pursue tackling ESG issues, then it needs to ensure that they have effective governance professional to act as a key driver, who thoroughly understands the importance of ESG both to the sustainability of the company and to the society in which it operates.’ I couldn’t agree more.