Understanding Responsible Investment #5 - The three characteristics of SRI 2/2
Dorothée Chapuis: Hello everyone and welcome to the fifth episode of our "Understanding Responsible Investment" podcasts series. I am Dorothée Chapuis, Head of CSR for Société Générale Private Banking Luxembourg, Monaco and Switzerland, and I am with Paul Marouzé, from the Socially Responsible Investment (SRI) team at LYXOR, the asset management company of Société Générale, more specifically in charge of shareholder commitment activities. With Paul, we will discuss two other characteristics of Socially Responsible Investment, which are firstly commitment and secondly transparency.
Dorothée Chapuis: Paul, tell us about what the notion of comittment covers.
Paul Marouzé: As a manager of listed shares, it means acting as a responsible shareholder, which encompasses two aspects: on the one hand, regular dialogue with the companies in which we invest, and on the other hand, exercising our voting rights as a shareholder. The first aspect involves dialogue with companies on their developments in ESG practices, going beyond what is made public in extra-financial reports. These exchanges can cover a wide range of subjects such as the company's governance and diversity policy, but also topics with more environmental connotations such as the company's climate strategy. The aim is to understand to what extent and by what means the company is on the road to improving its ESG practices. Beyond individual exchanges between the responsible investor and the company, shareholders can sometimes form a coalition to push certain companies to improve their practices, particularly on environmental issues. For example, this is what the Climate Action 100+ initiative, of which LYXOR is a member, proposes. This international initiative aims to mobilise and engage greenhouse gas emitters (CO2, methane, thermal coal combustion, etc.) in order to drive the energy transition and thus contribute to achieving the climate objectives of the Paris Agreement. These objectives aim to maintain or reduce global warming below 2%c by 2100. This form of collaborative commitment allows investors to have a greater say in the company's future.
Paul Marouzé: It's about using your right as a shareholder and this with responsibility. Remember that voting is a shareholder's duty under the European SRD2 directive (which in English means "Shareholder Directive n°2", or in French, "Directive du droit des actionnaires n°2"), developed after the financial crisis of 2008. An asset manager who invests in equities is in fact able, like any shareholder, to vote at the general meetings of companies. A responsible investor will therefore first of all try to define a policy and a voting perimeter. For several years now, voting policies have been evolving to include more and more non-financial considerations. According to this policy, the investor will vote in favour of resolutions improving corporate social responsibility, such as the appointment of independent directors to the Board, or the introduction of ESG criteria in the calculation of executive remuneration. On the other hand, they may vote against resolutions that are not in line with good sustainable development practices. At LYXOR, for example, we do not hesitate to vote against certain types of resolutions if the company does not disclose its greenhouse gas emissions. As regulations require investors to do so, the voting and commitment policy as well as a progress report on the implementation of these policies are published on the websites of responsible investors. Some investors go a step further by also making their votes public in full, which is the case for LYXOR in particular.
Dorothée Chapuis: And what is the second aspect of committment?
Dorothée Chapuis: Thank you Paul for this clarification. After thecommitment, let's now look at what transparency, the third characteristic of socially responsible investment, entails?
Paul Marouzé: The idea is to show how the responsible manager himself contributes to the change towards a more sustainable economy. Today, it is difficult for investors to position themselves as responsible if they do not publicly justify his actions. As we have seen, voting and commitment policies are made public. Similarly, more and more investors are now publishing extra-financial reports on their portfolios that include ESG data as well as information on the carbon emissions of the various assets that make up the portfolios.
Dorothée Chapuis: Thank you Paul, we have understood the different approaches to responsible management and what commitment is. But different approaches mean different choices if we want to invest in sustainable funds. What criteria should we base our choice on? This is what we will see in our next podcast. See you soon!
This podcast is part of a series of episodes proposed by Societe Generale Private Banking to understand responsible investment. It is available on the Spotify and Apple Podcast streaming platforms via the "#Private Talk by Societe Generale Private Banking" program and on our website www.privatebanking.societegenerale.com. Feel free to subscribe to be notified when the next episode is released and to spread the word.
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