We all have beliefs that we care about and a company’s behaviour can often influence our decision on whether to buy from them.
Nowadays, because we have so much choice, we can decide where to shop, what to eat, what to wear and where to go on holiday all based on whether we like the company’s or country’s culture and ethics.
So we can influence a company’s behaviour with our spending but we can also influence a company with our investment. You don’t need to be a billionaire owning a large percentage of a company either. Anyone can do it.
Shareholder activism influencing a company’s behaviour
If you invest directly into a company then you become a part owner in that company. Shareholder activism is a way that shareholders can influence a company’s behaviour by exercising rights as partial owners.
Different classes of shares will allow different rights such as voting on key board members and management pay.
Shareholders can also get together to make demands and increase pressure on the company management to change their ways.
Some of the issues shareholders might influence include:
- Disinvestment from politically sensitive parts of the world.
- Better workers’ rights.
- More environmentally friendly.
A recent example of shareholder activism in action involved energy company ExxonMobil, formally the biggest company in the world.
A hedge fund was able to successfully stop the re-appointment of some existing board members and replace them with their own nominees. The result of which means more influence on the board to encourage a change in strategy to more focus on clean energy.
But what if you don’t invest into companies directly and use investment funds instead? Can you still influence a company’s behaviour? Absolutely.
Investing in funds can still influence a company’s behaviour
The stories you hear in the news around shareholder activism will usually involve very wealthy investors with a large stake in a company.
For most of us, we will be investing into funds.
Investment funds pool together all the money from all investors in the fund and use this to buy shares in companies.
Many investment funds have billions invested in them meaning they are able to build large stakes in companies and influence a company’s behaviour.
So you can still influence a company’s behaviour by choosing the right investment fund and fund manager that matches your beliefs and shareholder strategy.
Tracker funds can influence even more
We are big advocates of tracker/passive funds as the evidence shows active funds very rarely beat the market consistently and will charge you a lot more.
You would think tracker/passive funds would have less influence over companies as they only buy into companies automatically based on the underlying benchmark.
But actually tracker/passive funds are more incentivised to focus and influence the companies they invest in because they will be holding them for the long term. Rather than buying and selling like active funds do.
Better still there are now investment funds out there that actively promote the issues they care about.
ESG stands for Environmental, Social and Governance.
These type of funds will screen out companies that don’t fit with the beliefs they hold and invest in companies that fit their agenda.
Here at RTS Financial Planning we have built our own ESG portfolios, the RTS ESG range. Our portfolios still benefit from our evidence based approach to investing and are low cost.
So if you have strong beliefs or even if you are choosey when it comes to the things you buy, why not apply the same beliefs to your investment strategy? You just need to find the right investment manager and fund that fits with your beliefs.
Want to find out more? Please contact us for a no obligation chat at no cost. We can explain the options you have and what you need to do next.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.