ESG-talks is a series of interviews with ESG professionals with diverse educational and professional backgrounds, whom we regard as role models. This series aims to encourage participation in the ESG and responsible investment (RI) space, to attract talent from different sectors and industries, and to widen the conversation.
Lisa Hayles is Director of International Stakeholder Advocacy at Trillium Asset Management in Boston, the US. She was born in Canada, where she studied Political Science and History for her BA at the University of Toronto, and International Development on MSc level at the University of Guelph. Lisa has been working for more than 20 years in advising, designing, and building responsible investment approaches, in four countries so far.
In the first part of the interview, we talked about her training, inspiration, and some general questions about ethical investment, in this second part we are delving into engagement and advocacy; difficulties and appeals of her job.
How exactly should we imagine your work in engagement and advocacy?
We use all the tools at our disposal: direct dialogue, proxy voting and filing shareholder proposals and collaboration with other investors, investor statements, investor letters. we are active managers; we stock pick, and we are also a long-term investor, in terms of the fact that we hold companies for typically three to five years, and some of the companies in our portfolios we have held for much longer than that. Starbucks is a great example; we’ve owned Starbucks on and off for twenty years, and over that time we’ve engaged them on everything from the use of genetically modified milk to reducing the amount of waste sent to landfill, to disclosing information on the diversity of their workforce and their senior leadership. And most recently we were successful in getting more than a 50% vote at their last Annual General Meeting around asking them to conduct an independent assessment of their adherence to International Labour Organisation (ILO) standards. Starbucks has been essentially union busting and in the United States the protections for employees who try to organize are so weak that they’ve been able to get away with it. They’ve harassed, fired people, they’ve been brought up on multiple cases before the National Labour Relations Board. They’re very lengthy cases, and so it could be years before these employees receive compensation or are offered their jobs back and many of them are young people and these are not well-paid jobs. Which is part of the reason that the employees are organising, they have made some good strides, and you know I generally would say that companies will do whatever they can get away with to make a profit and part of our role as investors is to encourage and advocate for more responsible business behaviour.
So, the good initiative never comes from the part of the company, it always comes from the part of the investor?
Companies are not monoliths. Of course, there are people within the companies who are advocating for improving their environmental performance, ensuing the highest standards for human rights in their supply chains etc. At Starbucks for example, they introduced fair-trade coffee initiative, and we encourage them to expand. Companies have a lot of pressure on them from short sellers and from quick profit takers who are encouraging them to make the quick buck. Many of the things we’re asking them to do require more upfront investments. We do this to pay dividends further down the line, because we’re long-term shareholders and we want the company to prosper over time and we argue that we’re the kind of shareholder that most companies should welcome as true partners. We want the company to succeed and want all stakeholders and rights holders to have their rights respected and to have remedies available to them when there are abuses.
I often say that within the stakeholder framework, investors are on a tier above all the other stakeholders, as far as companies are concerned, and this means that we have a responsibility to act responsibly. Therefore, given this heightened, influence that we have, we should use that power, that influence in a responsible way to drive responsible business behaviour. Companies often tell us they obey all laws and regulations. There’s a big gap between what’s legal and what’s ethical, and I think we want to be one of those voices that argue you have a lot more space for manoeuvre, in terms of behaving ethically than you sometimes give yourself credit for, and we want to be those investor partners that argue in favour of that. Sometimes there will be upfront cost, but as an investor we see that as an investment; a process that’s going to pay dividends down the line.
Impact investing is a relatively new concept in ethical investment, and as per usual, we struggle defining it. What is your take on it?
Finance and investment professionals are taught to ignore information that isn’t relevant to price or to the company performance and therefore impact investing is really challenging that paradigm and asking them to think about additional issues or criteria and that requires both a new lens or an additional lens, and also kind of a re-setting of the expectations and the norms.
I think that’s part of the reason, why it’s been challenging for the whole responsible or ethical investment movement from the beginning. When I started at Eiris, Peter (Peter Webster, CEO of EIRIS Foundation – edit note) would tell the story about how the groups that founded Eiris were protesting apartheid, wanting to talk to their fund managers and ask them ‘Well, are we complicit?’, and their fund managers answered ‘We have no idea, that’s not what we do. What do you mean? Complicit in what?’ So, a research project started to investigate the links in the portfolios owned by a number of companies and organisations.
Similarly, right now we’re at another inflection point, where we are, in my personal opinion, in the late-stage capitalism, when most of us recognise that the financial system is not working very well.
Do you think that our financial systems need a thorough change?
Yes. There’s plenty of evidence that the financial system as it’s currently constituted is not working for the vast majority of people even though capitalism may have been one of the most successful financial systems ever created. It is a system that was created and therefore we can determine its parameters, we can shift if it’s not working for the majority of people by changing those elements that are causing harm. We must try to reduce the harm and increase the positive benefits.
Some of the ways that I could do in my seat as an investor is to use the influence to advocate for more longer-term thinking and for acknowledgement of the impacts that companies have.
All investments have positive and negative impacts, and we keep asking questions such as: what kind of impact are you having? are you taking account of that impact? are you trying to reduce the negative impacts? And I think there’s much more scope for investors to do that.
for foundations, for charitable organisations: impact investing should be a no brainer, they should be taking this on board, given they are mission orientated. But even for large pension funds or pools of capital, that have hundreds of thousands of beneficiaries, it comes down to how you think about the future or how it’s interpreted.
Is there a paradigm shift in how we think about our investments, both as individuals and as corporations?
For a long time, there was this widely held the idea of exclusive focus on financial returns, meaning that often investors wanted the most financial return they can get. But typically, they also must include consideration of risk.
And I think what has shifted is this idea that there’s a whole range of behaviours that we are engaged in, that are destabilising to the system as a whole. There is this systemic risk that cannot be diversified away such as racism, economic inequality, environmental degradation. No individual investor can address that. This is a systemic, system-wide problem, and so it forces us to think about how we can work collaboratively with other investors, use our voice, influence policy makers and the companies themselves to get onboard with this necessary shift.
This is the question we ask everyone in this series: what do you think the next steps will be for ethical investment, ESG, or impact investment, in the next five or ten years?
There’s a growing understanding and consideration that the systemic risks I just mentioned have to be addressed. For any investor for any length of time, they have to be thinking about it, and it is becoming more common. Also, they talk about macro risk, the Russian invasion of Ukraine or geopolitical issues that happen in other parts of the world as well.
I think worker empowerment is going to be a huge issue for the next several years. There is I hope, a rebalancing of power, because it’s been so tilted in favour of senior management, that there really needs to be a significant readjustment. We’re going to get a shift in favour of workers that is long overdue, which is good.
Interview taken by Rita Sebestyen