Active Ownership – everyone is talking about it
Understanding active ownership
Broadly speaking, active ownership is the use of shareholder rights to advocate for good corporate governance and improve the long-term value of a company. The strategies employed by most asset owners and investment managers are proxy voting and corporate engagement. As stated by Simon Howard, CEO of UK Sustainable Investment and Finance Association, investors should be "responsible stewards, not absentee landlords".
In order to be a responsible steward, it's important to fairly assess and consider all of the factors that may shape or impact your vote as a shareholder. However, many firms own hundreds – if not thousands – of assets. This is where proxy voting comes into play. Typically, asset owners and managers use an external third-party advisor, such as Glass Lewis (which is used by Russell Investments). These providers administer asset owners' proxy voting practices, perform research and crucially – execute voting rights.
Corporate engagement on the other hand, is more personal. It is a direct dialogue with a company in which an asset owner or manager is invested. There are multiple goals: seek additional information; increase awareness and understanding of ESG issues; encourage greater disclosure, and communicate concerns or support.
How does active ownership impact your investment?
Unlike divestment strategies, active ownership embraces the power of shareholder rights to voice and influence, either individually or collaboratively with the companies in which they are invested. 1
The ultimate goal? To improve the corporate governance practices and enhance the long-term value of companies they are invested in. Inaction on the part of the company to engage with shareholders could pose significant reputational and financial risk, which may in turn negatively impact shareholder value.
Some of the issues and topics captured through the engagement process include:
- Director elections and executive compensation
- Proxy access and voting rights of shareholders
- Mergers and acquisitions
- Human rights and child labour
- Bribery and corruption
- Climate change risk
Russell Investments' approach to active ownership
At Russell Investments, we believe active ownership is more than just an obligation. We believe it's part of the value creation process. It enhances and protects not only shareholder value but also minority shareholder rights – the two cornerstones of our active ownership process.
We believe that companies should make themselves available for discussion with shareholders, and remain responsive to concerns expressed within the market. In our engagement discussions, we look to recognise the efforts companies have made to address investor/proponent concerns, gain a deeper understanding of the barriers companies face in their efforts to meet investor demands, and to demonstrate our support for corporate governance best practice.
We aim to improve the long-term investment outcomes of the asset through our active stewardship and voting policy by promoting four core principles
- long-term value
Active ownership. For some, it is just a component of the investment process – a hygiene factor perhaps. For Russell Investments, active ownership is our opportunity to improve sustainable corporate practices. And ultimately, it is a key way to help deliver long-term value creation for our investors.indicators, and data from exports and the purchasing managers indices (PMIs), for an ongoing read on the impact.
1 whereby investors exclude sectors due to corporate practices, ethical or religious beliefs