Article by Louis Ryall, ESG Research & Voting Analyst at Nest
One regular topic of conversation when discussing responsible investing is the divestment versus engagement debate.
Some investors prefer to avoid companies or industries they believe don’t fit with their values or long-term investment strategy, while others believe bringing about sustainable long-term change requires investors to engage with companies to push them to change their practices.
At Nest, we are first and foremost active stewards and interact with the companies we are invested in to help them make sustainable business decisions. Part of our responsible investment activities involves engaging with companies on systemic issues such as climate change, natural capital, board diversity, workers’ rights, and more.
Engaging with companies allows us to highlight key issues, which we believe will have a material impact on investment performance. We aim to bring awareness of these risks and how they can be mitigated to the companies we’re invested in to help achieve better long-term investment returns for our members. We will also join investor coalitions and different organisations such as ShareAction and Climate action 100+ to amplify our influence and impact during engagements and bring about real change.
- We practice divestment as a tool of last resort. It can happen when:
a company doesn’t comply with internationally recognised laws, such as those producing controversial weapon
- a company we repeatedly engage with isn’t responsive to our suggestions and doesn’t plan to address highlighted environmental, social and governance (ESG) risks
- we believe a particular industry is expected to perform poorly in the long term, such as the tobacco industry.
In December 2021, Nest withdrew money from ExxonMobil and four other energy companies after a three-year-long engagement programme led by UBS, one of our fund managers.
The three-year programme was successful, with 60% of companies making good or excellent progress in transitioning their business towards a lower carbon economy. But, five companies were unresponsive to our approaches, had failed to address our concerns about highlighted ESG risks and had not done enough to convince us to remain shareholders, so we divested.
As shareholders one of the best ways to engage with companies is in the lead up to Annual General Meetings (AGMs), which usually take place in the spring.
This year we:
- supported a resolution at Unilever’s AGM calling on the company to disclose the proportion of sales coming from its healthier food options and to increase their healthy food sales targets by the end of the decade. This resolution aimed to change Unilever’s current approach to consumer health given rapidly evolving regulatory trends and consumer expectations towards healthier food and drink products.
- co-filed a resolution calling on Sainsbury’s to become an accredited Real Living Wage employer by setting the minimum pay for all their staff to the real living wage. Research has shown that paying staff the real living wage can drive increased service quality, productivity, and a reduction of costs in the long term, as well as allow employees to get paid a wage that better reflects current cost of living.
Our activity during this year’s AGM season has delivered some successful outcomes. Unilever has pledged to publish nutrition scores for its food portfolio (which includes Ben & Jerry’s and Magnum ice-cream, Hellmann’s mayonnaise, and Knorr stock cubes) against external health metrics and to set new targets by October 2022. Sainsbury’s has agreed to pay all its directly employed staff a Real Living Wage and while this is great progress, we believe they can go further and guarantee they’ll always offer a real living wage, not only for their direct employees, but also contracted workers, by becoming accredited Real Living Wage employers.
By engaging with companies, we mitigate ESG risks, improve long-term investment returns, and achieve better retirement outcomes for our members.