Sustainable Investment in China | Principle 2: The Importance of Active Ownership

The recent global financial crisis, with its catastrophic corporate failures, has demonstrated the vital importance of “active ownership” to regulators, investors, and the economy as a whole. What is “active ownership”? The second principle of the PRI states: “We will be active owners and incorporate ESG issues into our ownership policies and practices.” Within the PRI network, there are a number of key strategies used by PRI signatories to align the behavior of the companies they own with their interests as long-term investors.

Most PRI signatories use their rights as shareholders to vote in an informed way at company annual general meetings. Voting sends important signals to companies that investors are fulfilling their basic monitoring role and are willing to challenge management where they feel management is not acting in the interests of investors relating to various ESG issues. PRI signatories also regularly file and co-file shareholder proposals and send letters to company management explaining voting decisions. Recently, for example, a PRI signatory filed “Say on Pay” resolutions, aimed at aligning pay with performance, and ensuring shareholders played a role in remuneration structures. These recommendations were accepted by nearly 50 U.S. companies including Microsoft, Pfizer, and Goldman Sachs.

Many PRI signatories engage directly with companies on ESG issues that are material to long-term financial performance. Our recent PRI Report on Progress found that signatories were involved in over 12,000 engagements with investee companies over the course of 2008. These engagements covered issues including executive remuneration, water sustainability, labor standards and biodiversity, and ranged from sending a letter to management to participating in company meetings and shareholder resolutions.

PRI signatories are able to use a private forum called the PRI Clearinghouse to enhance their impact by working with other investors in a collaborative dialogue with investee companies and to pool resources. A recent engagement to promote the Carbon Disclosure Project, for example, has seen a group of 50 investors target 300 companies, including three mainland China- and two Hong Kong-based companies, asking them to improve the disclosure of their carbon emissions and develop emission-reduction strategies. This is a good example of how being an active owner can help investors identify the ESG risks and opportunities of today and avoid crises in the future.

For more information, please contact Narina Mnatsakanian at narina.mnatsakanian@unpri.org.