Putting your money where your mouth is—conscious investing and activist shareholders

Gender equality and diversity are often seen as an internal organisational issue rather than the key to a sustainable, high performing company that delivers to all its stakeholders.

How can we shift this conversation? Making informed decisions about purchasing power through mechanisms like activist shareholding and conscious consumption could hold the answer.

The Simplicity approach

In July, Simplicity KiwiSaver wrote to the CEOs of NZX50 companies advocating for full diversity in Board and Senior Management within 5 years—and asking these companies to submit their plans to do so within the next six months.

As a shareholder in all of these organisations, this very public call puts an extra push behind the NZX50 diversity reporting guidelines released in May. Under the new reporting requirements, listed companies must establish a diversity policy with measurable objectives and assess their progress against these objectives each year—and most importantly, issue an explanation if they choose not to establish such a policy.

Simplicity’s challenge leverages the power of being an investor with over $150m of funds under management to make real change for New Zealand and New Zealanders. It reflects the approach of some overseas activist shareholders and investors who are using their money and investment power to make a stand for change.

Activist shareholders

Activist shareholders can choose to flex their influence over any number of issues—from the virtuous to the venal. However, an increasing number are choosing to use their influence to advocate for issues like the gender pay gap or, like Simplicity, increased diversity on boards.

The strongest examples of this approach come from the USA. For example, hedge fund Ides Capital uses their leverage to address weak governance practices—that includes a lack of diversity. Fund manager Dianne McKeever says “Weak governance practices, including a lack of diversity, coincides frequently with poor valuations. Those improvements, in our minds, are no-brainers.”

Similarly, Boston-based Arjuna Capital has been placing pressure on some of the world’s biggest tech companies. As an investor in companies like Amazon, Facebook and Google, Arjuna has submitted a series of resolutions to shareholders that would require the company in question to publicly disclose their gender pay information.

The initiative was led by Arjuna director of equity research and shareholder engagement, Natasha Lamb, who says: “Our clients are interested in investing in such a way that they’re having a positive impact on the world with their money. We pick issues that we think are good for society, good for the environment, and will be good for the companies that manage them well.”

Using your purchasing power to reflect your values

With more spending power, disposable income and choice, consumers can make more informed decisions about where to spend their money. Website guides like the Ethical Fashion Guide and Femeconomy help people to make every day purchasing decisions that are aligned with their values—whether those are around the treatment of factory workers, or the gender equality of the company’s ownership or governance.

And in terms of investment and banking products, some financial institutions are looking to serve the same need. The most widely known of these is the SSGA Gender Diversity Index—‘SHE’ on the NYSEArca stock exchange—recognised worldwide due to the virality of Kristen Visbal’s “Fearless Girl” sculpture, a canny advertising spot for the fund.

The indexed fund is designed to include the stocks of companies with female leaders in their top ranks. Described as one of 2016’s most successful exchange traded funds, the popularity of the fund shows how more investors are seeking to reflect their values through their investments.

Closer to home, Australia’s NAB has released a bond that recognises their customers interest in supporting gender equality. The NAB Social Bond (Gender Equality) includes organisations cited as Employers of Choice for Gender Equality (EOCGE) by Australia’s Workplace Gender Equality Agency (WGEA)—and has raised over $500 million.

Consumer activism versus quotas and targets?

The USA has a historic resistance to regulation, from the Stamp Tax onwards. The rise of this kind of shareholder activism, then, is an industry-based recognition of the importance of diversity and equality and the value that this brings to business—in the same way that countries like Norway or the UK might use targets or quotas.

In New Zealand, shareholders, investors and consumers are increasingly recognising the value of diverse boards and gender equal workplaces and are using their investment power to make change. And while the recent moves by the NZX50 have stopped short of setting diversity targets, it’s clear that there is plenty of appetite for establishing robust checks and measures.

It will be interesting to see what impact industry-based solutions like Simplicity’s shareholder activism and the voluntary diversity reporting framework adopted by Champions for Change organisations, will have on building more diverse boards, more sustainable New Zealand businesses, and a more fair and equitable New Zealand.

 

ImageFearless Girl Statue by Kristen Visbal New York City Wall Street, by Anthony Quintano, via Flickr