Listed companies in Germany discuss more and more environmental, social and governance (ESG) issues with asset managers as pressure from investors rises, a fund manager said.
Janne Werning (pictured below), head of ESG capital markets and stewardship at German asset manager Union Investment, explains: “The pressure is coming from climate aware, active investors. There wasn’t one AGM [this year] that wasn’t connected to sustainability topics.”
Engagement on ESG activities has risen to €91bn in 2018 from €52.7bn in the previous year, according to the Forum Nachhaltige Geldanlagen, the sustainable and investment and finance organisation for the German speaking region.
The focus on engagement and voting activities is a relatively new trend for German investors, a DWS paper, published in July, says.
“This may be due to the tradition of German investors preferring to attend relevant meetings locally, addressing the issues in person or them preferring one-on-one engagement with German companies which is occurring alongside a low level of disclosure of this activity terms,” the paper explains.
Commitments by RWE and BASF
As one major milestone reached on engagement, Werning names the announcement of two DAX companies, chemical maker BASF and electric utility RWE, to review their lobbying activities.
Investors demanded from these to bring their lobbying activities in line with the climate target of the Paris Agreement.
Gerald Cartigny, former chief investment officer at Dutch asset management firm MN and now with Goldman Sachs, commented: “As investors we are calling upon the power utility sector and policy makers to demonstrate they are taking the right measures at the right pace.”
Union Investment addressed CA100+ work and the topic of lobbying in speeches at the AGMs of both companies.
With RWE, it discussed the company’s business risks and opportunities and integrated the results in a structured engagement dialogue.
Janne Werning, head of ESG capital markets and
stewardship at Union Investment
Werning believes that CA100+, which brings together more than 370 global investors with over $35trn (€31.62trn) in assets under management, has an influential voice in their engagement activities, and that it was central in the German companies’ decision.
In its first progress report, published in October, CA100+ found that across its 161 ‘focus companies’ it has engaged on, it has so far secured 11 commitments by companies when it comes to reviewing their lobbying activity.
Paul Chandler, director of stewardship at the Principles for Responsible Investment, points to the potential of engagement to bring change: “We strongly believe that stewardship is the most powerful tool investors have at their disposal to align our economy and society with the interests of beneficiaries and wider stakeholders. The problem is, we’re not using it to its fullest potential.”
ESG is buzzword
While the pressure of investors was effective in case of RWE, Werning believes that German companies find themselves in a broader context to act on sustainability issues.
Increasingly, he says, companies are in a ‘sandwich position’, in which sustainability regulation, such as the EU Shareholder Rights Directive, approaches from above and consumers from below.
But Werning explains that ESG in Germany has “still some way to go”.
“ESG integration is something every asset house in Germany is talking about. It’s sort of a buzzword.
“But the more you talk about it the more you have to really understand what it actually means. From a sustainability perspective, it’s a good direction,” he notes.