In a world of anti-ESG backlash, where next for companies, their investors and stewardship?

Catherine Howarth OBE, Chief Executive of ShareAction since 2008, gave the keynote address at the CGIUKI ESG Summit on 2 May 2024. In addition to her executive role, Catherine also sits on several boards, committees and taskforces, so she was ideally positioned to speak about the anti-ESG backlash and what it means for companies, their investors and stewardship.  

According to its website, ShareAction is a registered charity that works ‘with investors, policymakers and individuals to tackle the most pressing issues of today’ which they do ‘by coordinating civil society activism to promote responsible investment across Europe.ShareAction believes that the millions of people who pay into pension schemes are best served by an investment community which takes its obligations seriously when it comes to holding companies accountable for their stewardship of assets.  

Catherine is adamant about the importance of organisations investing in a professional governance capacity, having witnessed firsthand the positive impact made by the governance manager at ShareAction. Catherine reflected, if just one person can make this much difference, imagine what governance professionals could achieve collectively when it comes to stewardship 

The stewardship recession 

Catherine emphasised that to achieve the goal of net zero by 2050, concerted effort is required now. Businesses are not exempt; according to the FCA’s 2022 Financial Lives survey, 79% of adults agree that businesses have a wider responsibility than just generating profits, and this includes ESG issues 

Furthermore, the net zero transition presents an opportunity for companies; the net zero economy in the UK grew 9% in 2023 according to a report commissioned by the Energy and Climate Intelligence Unit. On the other hand, failure to engage will result in increased risk for businesses, with extreme weather conditions damaging property and impacting supply chains, resulting in increased prices. In What will climate change cost the UK?, the London School of Economics predicts that ‘under current policies, the total cost of climate change damages to the UK are projected to increase from 1.1% of GDP at present to 3.3% by 2050.’ As Catherine put it, acting early on climate change is smart economics – a late and disorderly transition is costly and bad for business. 

Despite all of this, progress with the low carbon transition is too slow to give us a chance of long-term climate security. Furthermore, the anti-ESG pushback which started in the US but is spreading across the globe has already applied the brakes to certain climate-related initiatives, and the financing for them. As investors step back from ESG ambitions in some quarters, Catherine argued that we are entering a stewardship recession 

This presents a challenge for organisations who wish to commit to climate-related efforts but don’t want to deter potential investors. The conflict is playing out at AGMs. ShareAction analyses how the world’s largest asset managers vote on shareholder resolutions aimed at improving companies’ impacts on social and environmental issues. Results published in Voting Matters 2023 showed that support for these resolutions has fallen from 21% of resolutions analysed in 2021 receiving 50% or more of votes cast, to just 3% in 2023. The concern is that this voting pattern signals to companies that shareholders are not interested in ESG investment – a position which may not be reflective of the attitudes of the people whose pensions they manage. 

The case for good stewardship 

ShareAction believes that good stewardship benefits investors, companies and asset managers. The FRC’s UK Stewardship Code 2020, which is currently under review, sets out principles for asset managers, asset owners and service providers in relation to ‘the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.’  

This is not easy work – it requires knowledge and skill. The perceived burden of stewardship on both investors and companies led to the removal of requirements around disclosure on short- and long-term resilience from the updated UK Corporate Governance Code. It is ShareAction’s belief that, while stewardship may be challenging, it is a core strength of the UK model and benefits both investors and companies. As such, Catherine called on governance professionals to support the stewardship code during the current review to ensure that disclosures include the information that investors need to make decisions.  

Catherine concluded by outlining further ways in which governance professionals can play their part in the management of ESG in service of resilience and financial success for their companies. These included: 

  • making time for ESG and stakeholder-related matters in board agendas 

  • ensuring that non-executive directors are aware of the net zero transition 

  • making use of the tools available to NEDs to help them address climate change as a strategic business issue, citing resources available from Chapter Zero.  

The UK Corporate Governance Code 2024 describes a successful company as being led by a board ‘whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society, with the company secretary ensuring that ‘it has the policies, processes information, time and resources it needs.’ These responsibilities map directly to the transition to net zero, without which no organisation can expect to have a long-term future 

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