those principles, which cover human rights, labour rights and the environment. Our investment managers should not hold companies that fail to meet these principles. We have not created a list of companies to divest from. There is a part of governance where we see it as the responsibility of the investment manager, and we will hold them to account on it. We do not want to hold companies failing to meet the UN Global Compact principles and if one of our managers retains such a company they will have to justify why, in their view, it is not failing. They effectively have to sign up to not investing in companies that fail on this, but we give them some discretion. On engagement, one of the jobs of our active managers is to take large positions in companies based on their view of the financials. They then need to consider material ESG factors. If they are engaging with those companies and there is no pro- gress, then they need an escalation process. The end of that process is divestment. Jackson: Within our responsible investment and engagement policies, we set clear guidelines as to what our escalation pro- cess should look like. We must invest for good returns, not only for the greater good of society. Either way, we do not take a divestment approach and favour engagement.
A blanket divestment approach would mean we lose our voice on key issues, which would not help our clients from a return perspective. Nor would it move the dial on addressing societal concerns, if less scrupulous investors take our place. It is about achieving outcomes. Generally speaking, we expect to see progress within three years or we have to think about what to do next by way of escalation. However, there are several steps before divestment becomes an option. We take voting seriously. In an average year, we execute at least 10,000 votes, which is an initial activity on the path to broader engagement with our investee companies. Gopinathan: Divestment is one tool in the toolbox, but by no means the first or only one. We use a milestone-based approach to assess how a company has progressed and setting the bar higher as the years go by. At the moment, it is a one-size-fits all approach, so there is a point when a discussion around divestment is needed. The progress is not linear and definitely not the same for every company because some sectors are harder to decarbonise than the others. A utility can decarbonise faster than a cement com- pany, for example. The discussion around divestment due to a lack of decarbonisa-
October 2022 portfolio institutional roundtable: Responsible investing 13
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