The use of escalation by asset managers “is inconsistent and often ineffective”, a senior manager at a responsible investment charity group has said.
Earlier this week, ShareAction, the responsible investment charity, launched its second guidance paper in its "Responsible investment standards and expectations" series to address the “critical issue” of asset managers failing to engage robustly with the companies they invest in.
ShareAction said its review of stewardship and sustainability reports of 50 of the world's largest asset managers found limited disclosure on the use and outcomes of escalation.
Despite asset managers generally disclosing some elements of escalation, for example their voting activity, it said the report was unable to fully capture the breadth, depth and quality of engagement.
Niall Considine, head of investor standards at ShareAction, said: “Unfortunately, the use of escalation is inconsistent and often ineffective.
“Further, disclosure of escalation is poor and therefore stakeholders cannot assess and compare how effectively asset managers are using this vital tool.”
In its report, the charity said asset managers often talked about the quality of their engagement with companies – sometimes to “justify a weak voting record or the absence of robust investment policies”.
It added: “However quality engagement should include a robust use of escalation, and at the moment it’s very difficult to see how, and to what extent, asset managers are escalating with their investee companies."
In its report, ShareAction proposes a standardised framework for escalation, which it said would allow:
- clients and other stakeholders to assess and compare how asset managers are using escalation tools;
- companies to understand how their strategic choices will affect their relationship with investors and how it might impact access to capital;
- investors and other stakeholders to identify overlapping goals and common purposes, and;
- other asset managers to be spurred to a more ambitious, consistent use of escalation tools to guide companies onto a path that benefits people and planet.
The escalation policy paper additionally calls for asset managers to ensure they resource their escalation capacity appropriately, concluding that escalation policies are only as good as the systems that underpin them.
Considine added: “Our paper lays out a standardised framework for a more ambitious and consistent use of escalation tools, supported by improved reporting. We urge asset managers to adopt this framework so that escalation is more transparent and delivers better results.”
Big tech is one of the sectors that has come under scrutiny for some years now in relation to the human rights implications of their products and services, with a focus on the potential for human rights risks or other social harms.
This has come about as a result of the rapid change technology has been undergoing, largely driven by the development of artificial intelligence.
As a result, this rapid development has been accelerating the debate around digital human rights and the approach of fund managers towards investments.
Fund managers and activist organisations are increasingly having ongoing dialogues with tech companies around these issues, and in some cases file shareholder proposals to change company behaviour.
