“TSC is a new NGO that is catalysing a paradigm shift in responsible investment.”
In their first year of activity, they have begun to build a field of asset owners, asset managers, advisors, and civil society organisations who want a new toolkit to ensure that profits are aligned with social cohesion and environmental preservation. They have elevated a systems-first mindset that emphasises the importance of overall market performance, contrasting this approach with a company-first perspective that exacerbates systemic costs and risks. They have begun to develop tools for beta stewardship so that investors have a way of inducing companies to prioritise their impacts on social and environmental systems.
That is the lead on the first-ever annual report from the group that has already had an impressive debut in the world of corporate governance and shareholder engagement. Highlights:
We are also encouraged by the growing support from proxy advisors and other shareholder engagement leaders, which play an important role in advising investors how to vote on different shareholder proposals. We look forward to building on these relationships in the years ahead, with a particular eye toward engaging in a dialogue with the world’s two most prominent proxy advisers—Glass Lewis and ISS.
WHAT’S NEXT FOR TSC AND BETA STEWARDSHIP?
While the 2022 proxy season is still months away, we are already building a broad coalition of supporters who recognize the importance of addressing a wide range of systemic risks, with a specific focus on the risks that we believe will most resonate with the investor community. We are also working on several off-cycle shareholder proposals for autumn 2021.
The key to our strategy is reframing the conversation on shareholder engagement from a company-first to systems-first approach. Engagement on systemic issues such as climate change and public health can have a more important positive impact on investor returns than engagement on company-specific issues by raising the returns of the benchmark returns for both actively and passively managed portfolios.
In the months ahead, we plan to continue to build this field by publishing research and newsletters, speaking at events and webinars, educating investors and proxy advisors, and engaging with the SEC and other public officials. We recognize how much work remains to be done and are grateful for the support of our funders, partners, and allies in pushing this conversation forward.
6 There is an active lawsuit led by a group of investors including ICCR and As You Sow to reverse the SEC’s 2019 amendment to the 14a-8 rule that raised the threshold required to resubmit a shareholder proposal from 3%, 6%, and 10% for matters voted on once, twice, or three or more times in the last five years with thresholds of 5%, 15%, and 25%.
7 Our work on beta stewardship is partly inspired by the “diffusion of innovations” theory, which is the process by which a social or technological innovation is spread over time among participants in a particular population or social system (in this case institutional investors or universal owners). Research suggests that an innovation can reach critical mass via successively higher rates of adoption, starting with Innovators (2.5% adoption) and followed by Early Adopters (another 13.5% adoption), Early Majority (34%), Late Majority (34%) and Laggards (16%). Based on the 2.5% threshold, we are at the Innovators stage of adoption. Learn more about Diffusion of Innovation theory here: https://corporatefinanceinstitute.com/ resources/knowledge/other/diffusion-of-innovation/
8 Urwin, Roger. “The net-zero challenge.” Top1000Funds.com, 8 July 21 available at https://www.top1000funds.com/2021/07/the-net-zero-challenge/ 7
Fiduciary duty should be adjusted to provide better guardrails