220. How Do We Make Big Business Behave?

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0:43Hello and welcome to The Rest is Money with me, Robert Pest, and Steph will be back with us very soon. This morning, I'm delighted to be joined by Catherine Howarth, who runs an organisation that I suspect many of you haven't heard of. It's called ShareAction. And the point of ShareAction is to put pressure on businesses to do the right thing, I think is how I'm going to express it. But Catherine, because most of our listeners won't know what you do, just tell me in your own words what the point of ShareAction is and what your aims are, and then we'll take it from there. Most of your listeners will be a member of a pension scheme, I imagine, or have some kind of pension savings.

1:25And what ShareAction does is galvanize the pensions industry and the wider investment industry to make sure that the companies that they invest in on our behalf are doing things that are in our interest. So obviously, number one is getting decent investment returns. But it's quite important that while they're doing that, companies aren't operating in ways that, for example, make us less healthy. And that was sort of a big focus of our work is trying to encourage the investment community to get their heads around the fact that companies have enormous impacts on people's health. The air we breathe, the food we eat, the jobs we do and the conditions we work in are all things that are shaped by our companies.

2:10And those are in the investment portfolios of our pension funds. So what we're doing at ShareAction is just nudging the investment community, especially the pensions community, to have a dialogue with companies so that they improve returns and productivity, but in a way that's actually beneficial to all of us who put money in our pension schemes every month. There's so much there to unpack or to explain. Though before we get on to the, I suppose, the sort of simple way of putting it, which is how on earth do you know what's in the interest or what people think is in their interest? I want to start though with just, you just tell us a little bit about the campaigns that you've run and the kind of impact you've had.

2:57So one campaign we've run over many, many years is to get EK listed companies, FTSE 100 especially, but beyond, to commit to being a real living wage employer so that they pay the lowest paid people enough to get buy on, enough to contribute to their own pension funds with etc. And that's been very, very successful. I mean, I'm not saying the job is done, far from it, but we have more than 50 % of the UK's largest listed companies are real living wage accredited employers 16 000 others are as well we've had a huge uh engagement of uh the pensions and wider investment community in that work has been very successful just on that how did you get businesses to listen to you because you're not the shareholder um so why do they bother to listen to you it's a really important point because with a very tiny amount of money You can buy shares in any of the largest companies across the world and you can have your say.

3:56And we do that at ShareAction. We go to the annual general meetings. This is a totally underused device. All companies are obliged to hold an AGM. You can go along and make a point. You can build a very good relationship with directors of large companies by just turning up with your tiny amount of shares. But the reason we have impact at ShareAction is that we're working with Legal & General, the UK's largest farm manager, Amundi, Europe's largest farm manager, Nest, the UK's biggest pension fund by a number of members. These are all massive institutions with enormous shareholdings that act on people's behalf.

4:30And you asked a good question, which is, how do we know what people want? Well, we do regular polling and we engage with people that have retirement savings and put money in the pension system every month. And we find that these themes are incredibly popular. In fact, for example, just on the living wage point, which I highlighted earlier, there's a far higher level of support for companies paying the real living wage amongst the population at large than there is reflected in the actions of the investment community that invest people's money on their behalf. So we do think there's actually a very strong mandate for a lot of this and that it's right to be nudging the pensions and investment industry to be thinking about these themes which really matter to people and matter to their lives.

5:16So I'm going to play devil's advocate. These aren't necessarily my views. But, you know, there is a coherent argument that says companies should simply focus on increasing their profitability and their financial returns to shareholders. And sometimes that will require them to take a more long term view than they traditionally do of their costs. So obviously, you know, many people would make the argument that too many companies polluted because they thought they were never going to be punished for that and they would never pick up the costs of climate change. But if ultimately you got governments imposing costs on companies related to those sort of externalities, then you might find out that their profits were sort of illusory.

6:14The corollary of that is, and some would say this would be the simplest optimal solution is, you have a bunch of directors running a company with a very clear set of objectives, which is maximise profit. And then if we think companies are doing harm by doing that, you've got to have the government basically intervening and making sure the damage that companies are doing gets paid for by the companies. so there is just an argument that says all you do here is perhaps a bit of sort of reputation washing for companies that do pick up you know some of your agenda but actually in the end you know what we really want is profit maximizing companies and governments that do their job of keeping us safe therefore you know in an ideal world there shouldn't be a role for you.

7:07Oh well I agree that in an ideal world there wouldn't be a role for us that's for sure But there is a role for us, partly because the sort of Milton Friedman view of the world, I think, has come a bit unstuck. He's the economist that sort of popularized the idea that if companies just maximized returns, then, you know, that would be their one and only sort of social obligation. And that would be how they kind of deliver the maximum benefit in the world. And I think the fact is that companies do externalize cost, particularly in the area of public health, in ways that end up being picked up not only by society at large, but actually by large institutional ambassadors that look after our pension savings.

7:51And so the point we make is that whilst it might be rational for the individual directors of a given company to operate in a returns maximizing way that does the most it can to kind of externalize its social environmental cost onto other companies across the economy and all of us in general. It's not rational, in fact, for pension funds that hold companies right across the economy to tolerate that because they end up picking up those costs elsewhere in their portfolio. portfolio. And I do think health is a really interesting example. Just to be clear, let's just ask about that then. So in terms of how you spend your time, where you exert pressure, is it more on the fund managers and the institutions that manage all our money?

8:39Is that really where you feel you've got to exert influence? Yeah, that's kind of the heart of what we do. Now, it's true that the high profile work we do involves getting into the weeds with these shareholder activist campaigns. And we've had a lot of success with those. Last year, we filed a shareholder proposal at Nestle, the world's largest food manufacturer, a company that all of us, week in, week out, are eating their products. And a lot of them are pretty catastrophic for our health. And we work to push Nestle to make some real commitments. And we're quite pleased with the progress. So talk us through what you put down a motion.

9:21You're saying, what did that say? They said set a long-term target to shift your portfolio of products, food products that you sell, towards ones that are independently verifiable as good for our health and away from the sugary junk that you currently make a lot of profit producing. and the argument we made is that doing so would be beneficial to the pension portfolios and also the lives of millions of people across the world who put money in a pension scheme every month and buy Nestle products as well. So quite pleased with the progress on that. So when you say progress on that tell me what you mean was there a vote in in the meeting?

10:01No there was a vote we didn't get an amazing level of vote but we got enough to secure meetings with the CEO of the company that led to So Leslie committing earlier this year to do world leading disclosures and we're still pushing them on the target setting. And just to be clear, when you say disclosures, can I just ask what that means? Does that mean telling us how much salt is in there, how much sugar is in there? Because obviously, you know, a lot of the recent research has been that so-called ultra processed foods are the ones that are most damaging. Have they said anything about moving away from those sorts of foods?

10:36It's quite focused on sugar and salt, but ultra-processed is highly correlated with that. And you're quite right that ultra-processed is an enormously damaging form of profit maximization by the food industry and quite rightly coming under scrutiny. And one of the reasons that this isn't just some kind of altruistic activity is that the fastest growing food categories are in the area of more healthy. So there's a lot of opportunity commercially in all of this. And that was also, by the way, true of the work we did on the real living wage and continue to do is that there was always a business case for that.

11:15These aren't things that even at the business level was often a business case, but certainly at the portfolio level. it can really add up to have more of your lower paid workers in the economy able to consume and able to save and able to do things which they can't when they earn less than the real living wage. And so have you had meetings with big companies where you know a finance director or a chief executive has said we you know you know we just can't afford to pay people the living wage? Yep, we have. So we're in a very live exchange with Marks and Spencer's, with Next, PLC and with JD Sports, where we filed shareholder resolutions this year, pushing them on the real living wage.

12:01We got a very strong level of vote. This is incredibly popular. And where the case has been made over time, that this actually helps build a more productive and equitable economy where more people have spending power. It could be a tough transition. And that's why we need long-term enlightened investors taking that more systemic perspective on public benefit issues like the real living wage, like public health, like carbon emissions. And I am quite encouraged by the fact that the UK's pensions industry is starting to grapple with the thought that we can't actually be a healthy and productive economy without a healthy population.

12:45And so it really does make sense. Can we just go back to M &S and Next for a second? You know, you said you've got a good level of support there. Was that just from small shareholders or did the likes of LNG and Nest vote with you? Nest voted for, LNG voted for, some of Aviva voted for. Scottish Widows, one of the largest pension schemes in the country, was a co-filer of the shareholder proposal. They've been particularly strong on this, and all credit to Scottish Widows. So when one of these big companies says, obviously in an ideal world we'd love to play the real living wage, but it'll depress our margins, dividends won't be as attractive.

13:29We have pension institutions here that look after all our money, that are prepared to see through that and say, well, you know, that might be true in the short term, but we're prepared to take that cost because for the long term, we think this will be in your interest. They are, you know, an LNG or a Nest will take that rather long term view. Yeah, and quite rightly so. That counts for quite a lot in terms of the dialogue that now takes place. And very pleased to say that the CEO of M &S, who runs a fantastic company let me be clear actually they do pay all their staff the real living wage they're just not prepared so far to pay their cleaners and security guards uh the real living wage which is the focus of our engagement with them at the minute but yes our our british institutional investors are quite enlightened on these themes particularly on the climate agenda and on the living wage i think health is a blind spot and that was one of the reasons i was kind of keen to talk to you today because we're running a brilliant event on the 13th of November called the Health Dividend, which will bring together about 80 institutional investors across the UK to really focus in on why health is such a strategic issue because the business case is really quite compelling.

14:47The lost productivity, which is created by air pollution and poor diets and mental health in the workforce not being what it could be, it's a real part of the UK's lost productivity story. It's highly material. And of course it affects people's lives. Are you basically saying to chief executives, chairs of these companies that, you know, because they do all suffer from large numbers of people not being able to turn up for work because they're unwell, Is your argument to them broadly, you know, it's actually in your interest to create the conditions for a healthier workforce? Is that your argument?

15:31Absolutely. Absolutely. I mean, poor workforce health led to more than 100 billion lost output to the UK economy in 2022. I mean, they're really material numbers. And the investment case is really strong. One pound invested in mental health of the workforce delivers a five-fold return on a one pound investment in the mental health of the workforce. And can I just ask, as part of this, you know, companies need to provide healthier products, you know, among what they put on the shelves of our big supermarkets. I mean, another piece of it, which I know Charlie Mayfield, who's been looking at this for the government, he's the ex-chair of John Lewis.

16:16And one of the things he's been looking at is occupational health provision by businesses to support their employees as they go through challenging times, particularly challenging times when it comes to their mental health. At the moment, we've got this very upsetting phenomenon where very, very large numbers of people just leave the workforce because they can't get the support in work. The benefits bill rises very much when they then sign on for the various personal independence payments and disability benefits that are on offer. but and so there's a big cost to the state but there is also a big cost to employers because employers um say they simply can't get the good people they're neither supporting those who go through a challenging period in work and then they complain that they just haven't got enough decent people so it's plainly a suboptimal approach at the moment again as i say in terms of your health campaign are you looking at the whole issue of you know essentially what kind of occupational health support companies should be giving their workforce?

17:22We certainly are. And that will be a main theme of the event that we're running on the 13th of November. And I should call out a very good work by a UK farm manager called CCLA that has really led the charge in engaging with FTSE 100 companies about the provision they have for mental health in the workforce and what investments they're making in that and what policies they have in that and what targets they've set for that. Because, yes, if we can improve people's mental health, well, obviously, number one, that means people are living, you know, happier and nicer lives. But it's absolutely an economic issue.

17:59It's a productivity issue. And it makes a huge amount of sense, in our view, for major investors to be having quite pointy conversations with companies about whether they are focused on this because the business case is there. And why do you think as of this moment, you know, you've been able to corral the big institutions, the big British institutions to help you with your campaigns on the national living wage, on reducing CO2 emissions, climate change and all of that. Why has it proved harder to get them into this space of trying to persuade companies to take a, many would say, more progressive approach to our health?

18:47I'm actually a bit mystified by why it hasn't had more profile within, if you like, the rainbow of issues that companies need to focus on that matter, absolutely. But I think it's time has come. And I think that the arguments apply at the individual business level, certainly on an issue like the mental health of the workforce. They certainly apply a kind of at the macro systemic level, like lost productivity of the workforce is a huge cost to the economy as a whole. It's a huge cost to portfolios. So the arguments do quite nicely stack up in a sort of similar way than they can for businesses. You know, it can really pay for individual businesses to invest in renewable energy where that saves them money, for example.

19:34But equally well across the whole economy, we need to decarbonize in order to stabilize the climate. So the arguments are quite similar, but it's been a bit of a blind spot. Anyway, we're changing that. That's shifting and shifting fast. And one of the reasons is that it really resonates for people. I mean, nothing people value more in their own life than their good health. So why would you not want your pension fund a bit switched on in thinking about the health impact the companies invest in on your behalf? And so I think this is kind of rapidly emerging as a priority theme within responsible investment practice.

20:14And quite rightly so. And it's exciting, exciting, because I think it really ties in with the national debate about productivity and growth, about the kind of economy we want to grow. Catherine, there's a lot more I need to ask you about in just a couple of minutes after the break. This episode is brought to you by Google. Now, if you ran a small business, what would you do with an extra three weeks a year? That's how much time the average small business could save with AI, according to Google's latest AI Works report. Three weeks isn't spare time. It's the ability to get the day to day done faster, giving you time to plan for the future.

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21:35Just one example of how Google's AI is fuelling growth and transformation. Find out more at goob.go.com slash AIworks. Hello and welcome back to The Rest is Money with me, Robert Peston. Catherine Hath of ShareAction is still with me. I mean, enormous American investment institutions, the likes of BlackRock, are now sort of embarrassed to campaign for what most people would say is sort of more responsible behavior by the businesses in which they invest. and that is undoubtedly, and we see this not just from fund managers that are American, we see it from big companies, we see it from media organisations.

22:22They are terrified of standing up to Donald Trump. Donald Trump appears to believe that responsible behaviour by the private sector is not what they should be about, which seems a bit weird. Has that made your job, your campaigning, significantly harder? Because obviously, you know, if you are a big British company and a very significant proportion of your shares are held by American institutions and they are the biggest fund managers in the world, you know, there must be a temptation to say, well, I can ignore a legal in general or a nest because, you know, I'm not getting any pressure from the huge American institutions.

23:00It definitely doesn't help. And I would say it's a breach of the fiduciary duty these institutions have to look after people's interests and focus on their interests and not Donald Trump's agenda. If we go through them, BlackRock, Vanguard and the rest, is there any American institution that is defying this new anti-woke, anti-diversity, equity, inclusion agenda of Donald Trump? Or have they all basically just rolled over and said, right, we're only going to focus on profits? Well, I'd say Northern Trust is one of the really huge managers that's sort of held the line a little bit more. And here and there on individual issues, you know, State Street holding the line a bit.

23:45But generally, it's very widespread. One of the things we do every year at ShareAction is a really interesting bit of analysis of how these major fund managers voted on shareholder proposals on social and environmental questions. And it's just so dramatic and so fast how far these big fund managers in the U.S. just stopped being willing to support a bit of a challenge to corporate management on these themes. So what's interesting, Robert, is that still these American fund managers are managing British pension fund assets. And the question becomes for those trustees that have awarded mandates to U.S.

24:25managers, why are you, when you, for example, as a British pension fund, have stated in your own policies that these things really matter, that you're interested in responsible business behavior and low carbon transition and decent health and wages, that you still hand the money over to fund managers that aren't prepared to back that up with the use of the votes that they control on your behalf. So when you say, what on earth are you doing giving money to enormous American institutions that are not behaving in the socially responsible way that you would want them to do, what do they say? Do any of them look a bit embarrassed at least?

25:06It's getting harder to answer the questions. I mean, I don't say, I think we could actually actually and be a bit more pointy in the way we pose that question. But let me give you a brilliant example of a pension fund, a very, very large one called the People's Partnership, which was set up for pensions automatic enrollment. And they have 6 million members and a lot of money. And they just took all of it away from State Street and gave most of it to Amundi, a French fund manager that has absolutely maintained a focus on these themes. Now, that really sends a signal into the market that European and UK pension funds are not going to uncritically award mandates to managers, wherever they come from, who aren't focused on using the shareholder power they wield on our behalf in ways that are in the interests of the underlying fund members.

25:59fund members so it's kind of getting quite interesting actually all this and I think what's very important is that listeners uh who have a pension fund should be aware of what fund managers have got the money um because you know you know you're you might know the name of your pension fund hopefully you do you might know that that pension fund is buying equities across the world not enough in britain we'll come back to that maybe uh and but but this question of which fund manager has got it and what's their policy on voting those shares around these issues really really does count you know there'll be people listening uh saving for a pension who who will think they have no ability to influence what their pension provider does with their money.

26:53Do individual pensioners can if individual pensioners get in touch with their pension provider and say, actually, you know, these are the issues that really matter to me. can you put pressure on x or y company or can you take my money out of x or y company do do pension providers listen to individual representations like that what would you say to somebody who's listening who says yeah i want to be an active shareholder through my pension can they be an active shareholder it's not as easy as it should be um i think pension funds should have an annual general meeting companies have an annual general meeting if you as i said earlier on this.

27:34If you buy just a couple of shares in a company, you can go and have your say. And that's a fantastically empowering and important opportunity. And it creates what's called a shareholder democracy. Now, most ordinary people don't own individual shares in companies. They put money in a pension fund and those pension funds don't hold AGMs. And they feel very distant from where their money goes. That's the problem. They're very distant from it, but they are and they aren't because they're living in a world that's shaped by all the companies that their pension fund invest in, whether it's the air they breathe, the diets they eat, the way they're treated at work.

28:15These are all things our pension funds can have enormous influence on in the way they allocate the capital, which companies do they choose, and in the way they steward the capital, which is the dialogue they have with those companies. And again, it's slowly dawning on more and more people just how important this is. And, you know, we live in a democracy, but companies, and we know we can vote for our MP every five years, but actually companies are shaping our lives almost as much as legislators. But we don't have enough of a say in that domain, which, again, is something that ShareAction's really, really interested in.

28:51because we talk about a shareholder democracy, but actually we don't really have one for most ordinary people. We had this incredible sort of almost a revolution in pensions in the last 12 years through pensions automatic enrolment, which means virtually everybody belongs to a pension, which is brilliant in terms of financial inclusion, but not voice. So apart from just having you, out of the goodness of your heart, deciding you know what British people want, And what's another institutional change that could happen so that the millions of people saving for a pension would have a bit more of a voice, a bit more of an influence of what their money does in a sort of social and environmental sense?

29:35Well, look, there's some really interesting innovations taking place and all credit to the pension fund industry for this. So, for example, there's been a lot of innovation in citizens assemblies. This is more in the civic sphere. so you get together a representative sample of let's say 200 people or 100 people that really represent the population demographically and then you do a really kind of quite in-depth deliberation on difficult tricky issues and i'm very happy to say that that is beginning to catch on in the pension fund industry now i want to finish with the collapse frankly and it's not too strong a word of investment by British pension funds and British investment institutions in British shares and British companies, right?