In September independent Stockholm-based SRI analysis house GES Investment Services launched a web-based extension to its active engagement service that will enable its institutional investor clients to become more involved in the engagement process.
“There is a need for an engagement/discussion forum for clients,” says GES marketing director Henrik Af Donner. “They want to influence but they don’t want to do so alone. They want to coordinate with other investors and share information.”
Until recently GES has kept its clients up to date with progress on an engagement process with a given company via reports issued throughout the year. The new GES Engagement Forum gives clients the opportunity to check progress at any time by logging on to a dedicated members’ website.
One of the key elements is that clients will have the opportunity to post their own thoughts on the engagement process in question. “In this way they will be able to enter into collaboration on issues with other interested parties,” Af Donner notes.
Currently GES has institutional clients representing around €80bn in assets under management. “Once the new system is up and running we expect this figure to increase enormously,” says Af Donner. “The major pension funds in Austria, Switzerland, Germany, France, Belgium, the Netherlands and the Nordics have all registered an interest. But as a web-based collaborative tool it suits both the big and the small pension fund.”
The company’s active engagement is focused on human rights and environmental factors and is based on a framework of international conventions. GES works on active engagement in partnership with London-based PIRC Pensions Investment Research Consultants.
One of the core principles is that where companies are considered to be in breach of international norms, investors should keep their shareholdings as long as possible with a view to maximising their influence in the engagement process.
In the past investors used to boycott companies whose activities they disapproved of; now diplomacy is the norm. “If they sell off their shares they sell off their influence,” says Af Donner. “We are advising clients keep their shares for as long as possible to influence the engagement process and to sell off the shareholding only as a measure of last resort.”
The GES approach is incident-based. “This way you have something to point to so it is easy for to understand for investors,” he continues. “And because it is easy to understand many companies will be willing to co-operate.”
Af Donner cites the example of a case in Japan in which 12 women brought a case against their employer Nomura for discrimination. This was picked up by the ILO and then by GES. GES then started a dialogue with Nomura. “It went as far as the last resort when we threatened to sell our shareholding in the company,” says Af Donner. “Within two weeks they had sent a team to meet with us in Stockholm. Nomura realised that as it is moving into Europe it must change its policies at home. They now send us a letter once a week to tell us what they are doing and this subject also features in the annual report. The Japanese unions are also positive – they have also visited us.”
As an analyst house the incident-based approach which GES uses is based on documentation. “Our model states that we should not engage based on suspicions,” says Af Donner. “In this way the process is kept manageable.”
We send an alert to the client when an incident occurs and then keep the client informed. “Sometimes it turns out to be just gossip,” he says, “two out of three cases are dropped.”
GES obtains documentary evidence from official sources which it uses to build up a case. Then a sector analysis and a risk assessment are carried out which provided the basis for a case report.
“At that point we hope the incident will stop because the company under scrutiny will take responsibility and set up a system to ensure it doesn’t happen again. Then we need third party verification that it hasn’t happened again; this concludes the engagement process. However, in many cases the final step lingers on for some time.”