Asset managers need to ‘do a lot more’, says Sarasin & Partner’s head of stewardship, Natasha Landell-Mills. The industry’s ducking and diving on corporate governance and sustainability is nothing less than a ‘scandalous’ failure to accept the social responsibilities of managing capital.
‘If you take a step back, an asset manager needs to do a lot more than just buy stocks and measure its performance against a benchmark. So many responsibilities have been neglected,’ she says.
‘As a shareholder, you have huge powers, but they are being underutilised. Where are the owners? We need to start using our votes in a positive way.’
Her insistence that collective responsibility has to start with personal commitment extends to investee businesses.
This month, Sarasin wrote to 45 companies – both held by Sarasin and under the scrutiny of its analysts – asking them to align their businesses with the Paris climate goals of capping global warming at 2°C centigrade, with an aspiration to reduce this to a maximum of 1.5°C.
Sarasin’s strategy is to ask board members of investee companies to offer personal pledges, with Landell-Mills pointing out that ultimately it is leadership that enacts change.
‘At the headline level, we want individual directors to commit to us that they are going to align their business goals with the Paris Accord, ahead of annual general meeting (AGM) season,’ she says. ‘We meet the chair separate to management and send them our engagement process.’
The move is prescient, with high profile Extinction Rebellion protests in London having just come to an end at the time of writing. Sarasin has had some success with its Paris Accord engagement initiative, saying that activists and executives are increasingly reaching agreement on the seriousness of the threat posed by global warming.
She highlights Danish wind company Ørsted as an example. While outwardly you might assume engaging with a renewable energy firm was preaching to the converted, yet 10 years ago it was called the Danish Oil & Gas Company, before it shifted its business model.
‘They are aligned with the Paris Accord and we asked them to make that statement in their report and accounts and two weeks later they did. Yes, it is a wind company, but it’s important that the chair personally committed. It shows that it can be done,’ she says.
Having a company commit to reducing its carbon output in its results is important, as it then becomes a binding obligation.
Other companies are moving towards alignment. Landell-Mills says that Enel has said it will make a statement at its upcoming AGM and she is hopeful that it will make the pledge in its next report and accounts.
Meanwhile, Maersk, the world’s biggest shipping company, last year committed to carbon neutrality by 2050.
Sarasin is also eating its own cooking, committing in January to a goal of becoming carbon neutral, as well as vowing to keep promoting policy reforms in line with the 2015 Paris goals (see box on opposite page).
The asset manager has a long history of ethical and sustainable investing, and all of its £13.8 billion of holdings have passed a sustainability screen.
It launched its climate active endowments strategy last February to broaden the suite of products and services it offers.
The strategy takes a multi-asset approach, looking to deliver a sustainable long-term return of Consumer Price Inflation (CPI) plus 4.5%.
The managers target companies selected through a filter relating to climate-related risks, using both positive engagement and negative exclusion as tools. Landell-Mills says both are valid ways to tackle companies, rejecting the view of some that there is a binary choice between investing in or divesting from companies operating in sectors such as oil and gas.
‘You can’t ignore oil and gas companies. If they continue to deploy capital for fossil fuels, you’ve got a problem. We launched our climate active strategy last year. It was developed with clients, particularly university clients who are under a lot of pressure to divest,’ she says.
‘The invest/divest argument has always been front and centre. Divest from the worst, engage with those that are trying to improve. They are not mutually exclusive.’
The climate active strategy has divested from BP and Total, but Landell-Mills says that the team is currently engaging with Shell, which last December pledged to 'align with society’s efforts to reduce carbon', for example. The strategy also divested from miner Glencore due to its exposure to thermal coal, and corruption concerns.
Landell-Mills says the huge surge of interest in environmental, social and governance (ESG) investing in recent years is ‘really great’, but accepts that it will inevitably lead to elements of greenwashing creeping into the industry from those firms which are trying to cash in.
‘Inevitably, it will mean that everyone will try and jump on the bandwagon, and some will just do it for the PR,' she says.
'But with greater interest, there will be more scrutiny. I believe those not doing it seriously will be found out. We like to think that we’ve been doing it a lot longer and better than others, with a high level of rigour. The stewardship process is an investment philosophy for us. We have a thorough thematic process that has ESG embedded in it.’
Landell-Mills is less enamoured with the term ESG itself. Just as ‘Bric’ lumped together four very different fast-growing emerging markets – Brazil, Russia, India and China – into a reductive singularity a decade ago, ESG homogenises a diverse range of desirable investment criteria now, she argues.
This has led her to push for the term 'stewardship' to be used, rather than 'ESG', at Sarasin. ‘ESG is part of that, but not the only part. I hate the acronym ESG: why are you lumping everything together? There is a big split in the ESG world between governance and audit, for example. Climate people feel uncomfortable talking about accounting and vice versa,’ she says.
Landell-Mills is actually an exception to this rule, however. A recognised expert in sustainability, she is also a leading voice in promoting good corporate governance in auditing practices.
She is currently a member of the Accounting and Auditing Practices Committee of the International Corporate Governance Network and has been an adviser to a number of government reviews of the auditing industry.
She is a vocal critic of shareholders blindly voting to retain companies’ auditors at AGMs, regardless of their failings. As a case in point, she highlights US bank Wells Fargo, which, despite committing massive fraud costing it well over $2 billion in payouts, its auditor of 18 years, KPMG, won a shareholder vote, with 98% backing its retention.
‘It’s scandalous and really concerning that investors are not kicking the tyres of the auditors. When we have done the analysis across the board – remuneration, the directors – we have voted against the re-election of more than 40% of auditors, more in the US,’ she says.
‘They’ve often been there for over 15 years and not independent because they are doing too much non-audit work for the company.’
Although auditing has been taking up a lot of Landell-Mills’s energy in recent times, her background was originally in sustainable development.
She graduated in economics from the University of Cambridge in 1994, and says that while her peers ‘were all joining investment banks’, she knew that she wanted to pursue a different path.
She went on to take a masters in natural resource economics at UCL, under David Pearce, an eminent early pioneer of environmental economics. She graduated to a job with the Overseas Development Institute (ODI) with a posting in the South American former British colony, Guyana, working as chief economist in the country’s forestry department (‘Guyana is basically rainforest’).
The ODI programme was designed to train economists for the Department for International Development (DfID), giving them first-hand experience in the field.
However, she opted to join the International Institute for Environment & Development as a senior researcher working on projects for DfID and various aid agencies for six years.
It was an interesting job, visiting developing nations across central America and Africa, but after a while she started to question the impact her work was really having.
‘It’s distant history now, but I’d been so certain about what I wanted to be at university, but was this place really having an impact. I was flying around the world writing reports which you can never follow through because you are not a civil servant,’ she recalls.
‘I’m not sure I felt that what I was doing was going to have a lasting impact. I was going to Central America, Ghana, Malawi giving advice, and it felt superficial after a while.’
Landell-Mills took a career break after maternity leave to look after her child and took time to decide in what direction she wanted to take her career. In the end, chance proved the biggest driver, after her husband, who works for the Foreign & Commonwealth Office, was posted to Hungary for four years in 2003.
She joined OTP, a bank in Budapest, which at the time was looking to launch the first ESG funds in Eastern Europe. Although ultimately the project fell through, she describes it as a ‘fabulous experience’ and she began training to beome a Chartered Financial Analyst while there.
Having found the right path for her, she later moved to the Universities Superannuation Scheme Investment Management before joining Sarasin in 2013.