How to be an activist with your money ahead of Human Rights Day
While young South Africans may know how to hold companies to account on social media, they may not be fully aware of the power wielded by their pockets. Ahead of Human Rights Day on 21 March, the legacy of the anti-apartheid activists is a reminder of our own responsibility to future generations and our power to bring about social change with our actions, including through our investment decisions.
This is according to Melissa Moore, an Investment Analyst at Futuregrowth, Old Mutual’s fixed-interest asset manager, who says we should all be thinking about what types of entities we are supporting when we invest.
“In the same way you might support or boycott brands or companies based on what you’ve seen in the media or what you know about their corporate behaviour, investor activism is about being conscious about which companies you support with your investments.”
Moore explains that investor activism refers to the actions taken by investors to engage with their investee companies on both financial and non-financial matters. They can do this through public campaigns, attending company annual general meetings, being vocal and voting on key matters, and presenting shareholder resolutions to deal with key issues.
“When you buy shares, you become a part owner of that company,” explains Moore. “When the company does well, you benefit from the dividends or the capital appreciation of the shares. But as a part owner, you’re also responsible for ensuring that this company is a good corporate citizen, which includes how they impact society and the environment.
Investor activism can take different forms depending on the type of investment you have.
Bondholders provide loans to companies or governments, which are often used to fund big projects, such as renewable energy projects or roads, for example. Bondholders are not part owners of the investee and so they may not be able to vote on how the entity is run, but as the providers of large amounts of capital they can nonetheless effect change in their borrowers’ behaviour.
They can do this through direct engagement with management, demanding transparency and good governance as terms of their funding, or by refusing to invest in entities that have pervasive environmental, social and governance (ESG) risks.
Most people don’t invest directly in the stock market but in unit trusts or retirement funds that are managed on their behalf by asset managers. “As the custodians of large amounts of wealth, asset managers have considerable power to influence corporate behaviour on our behalf,” says Moore.
“It’s your asset manager’s responsibility to ensure your investments drive higher ESG standards,” she says. That’s why it’s important to select one with a responsible investing mandate – and then to keep challenging them on their decisions.
If you have a unit trust investment, start by looking at your statement and considering the top 20 holdings in your fund. “Think about what you know about these companies and their track records, and do some research,” says Moore. “If you find evidence of unsustainable or problematic behaviour, challenge your asset manager on how ESG factors were considered in making investment decisions.”
Knowing exactly what your money is funding and learning how to use your investor status to take a stand about social issues is an important – and empowering – part of building your financial fitness.
Entities with responsible ESG practices also tend to be good investments, according to Moore. “In 2020, Morningstar reported that amid the pandemic, 24 out of 26 equity index funds that focus on companies with the highest ESG scores had outperformed their closest conventional counterparts”.
Responsible investment can ensure that your savings generate financial returns as well as meaningful social and economic outcomes, while preserving environmental sustainability. As an investor activist – this is what you can and should demand from your asset manager.
“With this in mind, investor activism is both good for your financial future and the future of the world around you,” concludes Moore.