"Why we Name and Shame"

Holly Black: I'm at the Morningstar Investment Conference with Sacha Sadan. He is Director of Stewardship at L&G Investment Management. Hello.

Sacha Sadan: Hi.

Black: So, we're talking about all things ESG today and there's a lot of language around this that can be confusing for investors. But something you said that struck me earlier that at the heart of it ESG investing is just common sense. What do you mean by that?

Sadan: Well, I absolutely agree with that. If we think about it, what do we mean when a company says that they care about their employees? Of course, they should care about their employees. Well, their employees are their most important asset. Well, how are you looking after them? How are you paying them? Are you paying the living wage? Or are you doing this stuff? And when they say things like I care about this other area, I care about climate change. Well, I don't need to care about. What are you doing? So, it's just trying to bring that back to real language, because you're absolutely correct, there's so many acronyms there, I can't spell half of them and I'm in the job. It's just too many things. And when you go back to the underlying client, they just want to know how is my money being run? Are they getting paid in shares? Are they going to get paid? And if my shares go down, do their shares go down? Absolutely. And that's the kind of thing you try and bring it back to.

Black: So, L&G took the step a couple of years ago, quite bold step, to start naming and shaming the companies that weren't doing well on this. What was the reason behind that decision and how does that help?

Sadan: We also do naming and faming but no one seems to want to care about the nice companies that we talk about. There's some amazing companies out there everyone wants about – we knew that. But end of the day, we've got quite a few things in the toolkit. Most of that is the word, the phrase everyone says we engage with the company. Well, what does that mean? If they don't agree with you would they don't do that? Then you can vote. Then you can have collaboration with other investors, and you can vote against. You can require a shareholder resolution. And then, the last thing you can do is either divest if you can, and if you are in certain products and you can't do it, you name them and you tell people that they are not doing a good job to try and get them to do better, and we've had some good successes with that. And of course, company chairman do not like being ranked against their peers and seem to be near the bottom. It does have quite an effect.

Black: So, L&G, you are doing all this engaging stuff and divesting stuff. But a lot of people would think of you as a passive investment house, tracker funds. Can a tracker fund be an ESG investment?

Sadan: Well, as we started with, ESG is common sense and we can be involved in that as much as anybody else, whether it's pay, diversity, changing your auditors and all of those sorts of things. And it's the size of your assets that matters sometimes, and we are very fortunate that we are very large, and we then get a voice, but we have to use that voice. But back to ESG, if you are voting and you're taking peoples' assets and you are looking after them, that is a sign of doing that. But of course, we have many different kinds of options like other people that you can do it at different areas. But some people don't want to take big tracking error, some people want low cost, but you can do things in that low-cost environment that are still credible and help.

Black: Sacha, thank you for your time.

Sadan: Thank you.

Black: And thanks for joining us.

Holly Black: I'm at the Morningstar Investment Conference with Sacha Sadan. He is Director of Stewardship at L&G Investment Management.

Hello.

Sacha Sadan: Hi.

Black: So, we're talking about all things ESG today and there's a lot of language around this that can be confusing for investors. But something you said that struck me earlier that at the heart of it ESG investing is just common sense. What do you mean by that?

Sadan: Well, I absolutely agree with that. If we think about it, what do we mean when a company says that they care about their employees? Of course, they should care about their employees. Well, their employees are their most important asset. Well, how are you looking after them? How are you paying them? Are you paying the living wage? Or are you doing this stuff? And when they say things like I care about this other area, I care about climate change. Well, I don't need to care about. What are you doing? So, it's just trying to bring that back to real language, because you're absolutely correct, there's so many acronyms there, I can't spell half of them and I'm in the job. It's just too many things. And when you go back to the underlying client, they just want to know how is my money being run? Are they getting paid in shares? Are they going to get paid? And if my shares go down, do their shares go down? Absolutely. And that's the kind of thing you try and bring it back to.

Black: So, L&G took the step a couple of years ago, quite bold step, to start naming and shaming the companies that weren't doing well on this. What was the reason behind that decision and how does that help?

Sadan: We also do naming and faming but no one seems to want to care about the nice companies that we talk about. There's some amazing companies out there everyone wants about – we knew that. But end of the day, we've got quite a few things in the toolkit. Most of that is the word, the phrase everyone says we engage with the company. Well, what does that mean? If they don't agree with you would they don't do that? Then you can vote. Then you can have collaboration with other investors, and you can vote against. You can require a shareholder resolution. And then, the last thing you can do is either divest if you can, and if you are in certain products and you can't do it, you name them and you tell people that they are not doing a good job to try and get them to do better, and we've had some good successes with that. And of course, company chairman do not like being ranked against their peers and seem to be near the bottom. It does have quite an effect.

Black: So, L&G, you are doing all this engaging stuff and divesting stuff. But a lot of people would think of you as a passive investment house, tracker funds. Can a tracker fund be an ESG investment?

Sadan: Well, as we started with, ESG is common sense and we can be involved in that as much as anybody else, whether it's pay, diversity, changing your auditors and all of those sorts of things. And it's the size of your assets that matters sometimes, and we are very fortunate that we are very large, and we then get a voice, but we have to use that voice. But back to ESG, if you are voting and you're taking peoples' assets and you are looking after them, that is a sign of doing that. But of course, we have many different kinds of options like other people that you can do it at different areas. But some people don't want to take big tracking error, some people want low cost, but you can do things in that low-cost environment that are still credible and help.

Black: Sacha, thank you for your time.

Sadan: Thank you.

Black: And thanks for joining us.