Barazal: Engagement gives you a qualitative view on certain data. When you look at ESG ratings you question the quality of a lot of this data. It is not financial information, it’s not audited. ESG is part of the story but you need to question it, you need to ask: “What does it mean? Where does that company come from? Where is it heading?” With engagement you can have a view on the future and help these companies to move in that direction. That is very powerful. O’Hara: Many of these companies have a big con- tribution to make in managing the low carbon transi- tion and developing the technology that’s required. There is a positive impact that you are having through these investments. Barazal: They are all part of the economy. Some of them will disappear but most of them need to be part of the transition. Ward: I co-chair the Transition Pathway Initiative, which is designed to support that process. It is a tool that looks at carbon intensive sectors, what they have disclosed and how transparent they are. It helps identify where companies are going as much as where they are now. It is important to differenti- ate between those who are being responsible and those who are not engaging in this debate to help us make informed investment decisions. O’Hara: One of the good things about the Transition Pathway Initiative is that smaller asset owners, that do not have the budget for a dedicated ESG person or cannot access detailed research, can use this tool; it’s free, there is a robust methodology behind it and it was built in consultation with asset owners with the needs of asset owners in mind.


PI: Does engagement work if you are a smaller scheme? Williams: Collaboration is key. Climate Action 100+ is a good illustration of that, particularly for small asset owners. If they collaborate they have a bigger voice than if they go in as an individual. Ward: You can see changes happening at Shell, for instance. There’s been quite a substantial push from investors around transparency. That is a massive shift. O’Hara: Yes, Shell’s approach to climate risk, announced in December, is ground breaking. Investors have been engaging with Shell for 20 years so engagement can be a long game and change can be incremental, particularly in developing markets where some companies are just getting used to engaging with investors on ESG issues.


PI: Is there a difference in attitude to engagement between UK and US-based companies? Ward: There is definitely a geographical difference. In broad terms, there is more responsiveness from European-based companies. There are challenges with some of the newer US companies, particularly in tech, which don’t seem to be quite as responsive to shareholders. They are delivering returns and that seems to be where they want to take the conversation. Dhillon: When some companies are floating they create interesting shareholder structures with voting and non-voting shares. That is something that we look at quite hard before plunging into particu- lar transactions. It is slightly concerning because they are creating a structure that potentially makes engagement harder.


14 May–June 2019 portfolio institutional roundtable: ESG


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