Interest in responsible investing was strong in 2017. And, in my role, I’ve been talking to more and more investors about their environmental and social concerns, so I expect interest to continue to swell this year.
In 2017, the new U.S. President and his policies became a point of discussion. As we move into 2018, what’s next?
At Parametric, we’ve been particularly interested in following three main issues that gained particular momentum during 2017. It will be interesting to see how these issues evolve as we move into 2018. They include gender equity, climate change and human trafficking/modern slavery.
Gender equity issue isn’t going away
In some ways, you can think of the gender equality issue as the corporate version of #MeToo. The issue has been in the background for years with little attention. Now the uproar over gender inequality, which has led to efforts to improve representation of women in senior corporate positions, continues to grow. From a shareholder perspective, the movement is largely focused on board of directors’ membership, where shareholders have the most influence.
In 2017, two gender-related shareholder resolutions at companies with all-male boards gained majority support . . . a rarity! Resolutions at Cognex in April and at Hudson Pacific Properties in May garnered 63% and 85% support, respectively. Hudson responded in August 2017 by appointing Andrea Wong to the company’s board. As of this writing, Cognex continues to have an all-male board. Although it is considered best practice for boards to respond to non-binding votes with majority support (which these were), they are not required to act.
In 2018, we are watching to see if more large shareholders move beyond supporting shareholder proposals to registering protest votes against board of director nominees at companies with all male boards. A precedent for this approach was set in 2017. For example, BlackRock voted against the nominating committee members at five companies with all-male boards. Additionally, State Street said it would vote against the chair of a board’s nominating and/or governance committee if the company was unreceptive to engagement regarding increasing the number of women on the board. Later in the year, State Street announced that it followed through with this action at 400 companies.
More investors are becoming climate change activists
Certainly, 2017 was a year of policy changes, but climate change continues to be a flashpoint moving into 2018. In particular, although the fossil divestment movement has gained considerable attention, many large investors, given their fiduciary duties, prefer to continue to own these companies and work to change behavior via voting or engagement. In fact, amidst all the public attention, the City of Seattle took the unusual step of releasing a memo from their legal team explaining this decision. This makes New York City Pensions’ recently announced plans to completely divest from fossil fuels over the next five years (as well as sue 5 major oil companies akin to the fight against tobacco) all the more notable. Will the entire state follow?
Given the noteworthy actions taken during 2017, we expect climate change to be a hot topic during 2018.
Ending modern slavery
Finally, this is a topic we have delved into before and started to help address: human trafficking or modern slavery. While there were no big policy changes in the United States, Australia is stepping to the forefront in the fight against modern slavery. In August 2017, Australian lawmakers proposed a law, and they hope to implement draft legislation in 2018 that is aimed at curtailing this crime. Related legislation is already in place in the United Kingdom, France, and California.
We certainly hope that the efforts made in 2017 will gain momentum in 2018, which will translate to more action by countries around the world against this heinous activity.
Shareholder engagement is on the rise. Investors clearly demonstrated in 2017 that they have an increasing interest in investing responsibly, and that they are willing to actively engage and challenge companies that fail to demonstrate good-faith efforts to be upstanding corporate citizens.
During 2018, we expect to see escalating interest as investors with portfolios of all sizes seek opportunities that meet their return needs, while also capturing their desire to make the world a better place. We look forward to helping guide our clients toward investment portfolio construction that puts their money to work, while simultaneously providing advocacy opportunities in accordance with their belief systems.
Potential Parametric Solution
Parametric has been offering client-driven, index-based portfolios that incorporate ESG criteria for more than 15 years. Our robust and continually evolving menu of ESG screens and licensed indexes gives investors a wide range of portfolio design choices. In many cases, however, investors are well served by a standardized portfolio with minimal modifications. With this in mind, we’ve designed a series of risk-controlled, index-like exposures that can be used as a core equity portfolio allocation while aligning with common responsible investing themes.
Jennifer Sireklove, CFA - Director of Responsible Investing
Ms. Sireklove oversees all aspects of Parametric’s Responsible Investing Strategies. As the primary strategist for responsible investing, Jennifer works closely with advisors and consultants to design, develop and implement portfolio solutions that incorporate their clients’ principles.
The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss.