Helping businesses change from within
The main method that the UKRF uses to influence business on social issues – and meet the social element of its responsible investment aims – is engagement, through our stewardship service provider, EOS at Federated Hermes (EOS).
In brief, stewardship involves:
- Asset holders using their rights to influence those organisations where they invest with the aim of safeguarding good long-term returns on those assets.
- Direct engagement with companies on strategy, performance, operations and culture.
The background
When the UKRF invests in equities – or, company shares – it becomes a shareholder in those companies. As a result, we have the right to a vote on any resolutions or actions taken during shareholder meetings. We use EOS’s voting service to enable us to vote on a scale we could not otherwise manage. To give you an idea of the level of EOS’s activity over a full year: during 2021, they provided vote recommendations allowing us to vote on 18,491 resolutions, across 1,378 meetings.
18,491 resolutions
across 1,378 meetings
However, where we hold debt investments (such as bonds) rather than shares, we do not have a shareholder’s voting rights. In these situations, we use engagement instead to influence a business. This is particularly relevant for social issues, which are often too complex or nuanced to resolve by voting. Engaging through EOS allows the UKRF to become part of a larger collective of investors, connecting with 570 companies where the UKRF has investments on 2,395 objectives and issues during 2021.
As these figures demonstrate, despite being perhaps the least widely understood of the ESG topics, social and ethical issues are as vital as environment and governance, taking up over 21% of EOS’s engagements on the UKRF’s behalf during 2021.
EOS currently advises on more than $1.5 trillion worth of assets when providing its corporate engagement and proxy voting services.
Our engagement activities enable long-term institutional investors to be more active owners of their assets, through dialogue with companies on environmental, social and governance issues. We believe this is essential to build a global financial system that delivers improved long-term returns for investors, as well as better, more sustainable outcomes for society.
Focus on human rights
Socially responsible investment concerns many topics such as workers' rights and diversity and human rights emerges as one of the most compelling and important themes.
Taking the lead from the UN Global Principles on Business and Human Rights, EOS has a three-part strategy framework in place to support organisations in taking positive action on human rights issues.
- Governance: Leadership should set the company’s human rights policy and overall strategy, then delegate actions and responsibilities to a dedicated team.
- Due diligence: Identify where possible risks and abuses occur, then develop and put into practice remedies that address them.
- Reporting: Publish full details of the strategy, including the risks and solutions adopted, with outcomes.
The EOS approach in action
EOS divides human and labour rights issues into five types or categories. This table outlines each of those categories and gives a real-world example of successful and ongoing engagement by EOS in that area where the UKRF has investment holdings.
| Category | Description | Example |
|---|---|---|
| CategoryBasic human rights | DescriptionEnsuring people have access to payment, food and medicine. | ExampleMcDonalds setting a goal to improve health and nutrition across its menu. |
| CategoryValue chain rights | DescriptionMonitoring impact of business on external populations (such as suppliers and customers). | ExampleCompass Group carrying out a review of migrant worker travel in the Middle East. |
| CategoryDigital rights | DescriptionProtecting online security and privacy, freedom of speech and expression. | ExampleEOS launching own set of best practice Digital Rights Principles. |
| CategoryIndigenous and community rights | DescriptionRespecting land rights and obtaining relevant community consent before impact. | ExampleRio Tinto putting in place an extensive programme of remedial action following a significant cultural heritage incident. |
| CategoryHigh-risk regions | DescriptionMaintaining awareness and appropriate action in war zones and disputed regions. | ExampleTotalEnergies withdrew from Myanmar, severing links with its humanitarian crisis. |
Read more
For more information about EOS activities, look here for an account of how an EOS engager might spend a typical day.