In this new series, ESG Clarity takes a deep dive into an investment firm’s stewardship activities, discovering their key focuses and processes, and what’s in their engagement toolkit.
Here, Andrew Mason, head of active ownership at abrdn, shares how the team will be engaging on biodiversity and climate, and how they will closely track progress.
What do you think will be the key trends in engagement and stewardship this year?
At a thematic level, we expect climate change and diversity, equity and inclusion (DEI) to be the most prominent topics in 2024. Our focus in engagement and voting has been on the link between these topics and good governance – ensuring boards have strong oversight of climate-related risks and opportunities, and that they are composed of directors with the skills, representation, and expertise to drive financial performance. How those directors perform and are remunerated will remain closely scrutinised.
See also: – abrdn mining engagement leads to health and safety recommendations
We also anticipate a growing focus on biodiversity, AI and other controversial technologies, through engagement and shareholder resolutions. At an operational level, stewardship approaches will continue to be formalised in policies and reporting, providing clients with better information on how we act as responsible stewards of their capital.
What is your firm focused on achieving with investee holdings?
Our focus is on working with investee companies to encourage improvements on financially material factors. This is in the best interest of our clients. For priority ESG engagements with companies, we set clear milestones to address the ESG risks and opportunities that we have raised. We track these engagements through their lifecycle to highlight the progress to date.
A key focus is our ongoing engagement with our Top 20 Net Financed Emitters. The engagement is aligned to our bespoke credibility framework, enabling a consistent approach across different regions and sectors incorporating quantitative and qualitative factors. We set milestones for the 20 companies in 2023 and will be checking progress in 2024 to establish whether voting action may be required.
See also: – abrdn abstains from approving Rio Tinto accounts over sexual harassment and racism
Where are clients putting pressure on asset managers to improve engagement?
Our clients want to ensure their assets are being managed by responsible stewards of capital. It is important that we provide them with the information to be assured this is the case. In practice this means making our approach clear and digestible. So, in addition to our annual stewardship report, we will continue to publicly disclose our voting policy, voting decisions and rationales. We will also publish an engagement policy for the first time. Clients are also keen to understand the outcomes of engagement.
How is your engagement toolkit evolving?
We are improving our engagement tools to provide better data around the outcomes from our engagements and enhancing our ability to track companies’ progress through our engagement lifecycle. We have also developed an escalation approach, setting timelines and possible courses of action where it becomes clear that the company has no credible plan to address the risks we have set milestones against. However overall, we feel that collaboration with companies yields better results for our investors in the long term.
