12 Oct 2020

On voting & engagement 

engagement

What being a responsible shareholder really means

Active managers have long claimed that only they have the strength of voice needed to encourage companies to make changes. We don’t share that view.

Passive managers hold a far higher share of companies’ equity than ever before. As a result, indexed investors like Lyxor ETF have more ability and more responsibility to speak up and promote sustainable investing practices in the goal of increasing investor returns. It’s a duty Lyxor Asset Management’s Socially Responsible Investment team led by Florent Deixonne welcome.

1.

Using Our Voice

In our view, index-based investing will be a key factor in helping to finance a greener economy for two reasons: 

  • Firstly, we as index trackers are providing sophisticated, science-based sustainable benchmarks. It’s simply incorrect to argue that the benchmarks of index-tracking funds and ETFs are backward-looking and therefore insensitive to the risks of climate change.
    Take Europe for an example. The EU has been working to introduce two types of carbon transition indices, the EU Climate Transition and EU Paris-aligned benchmarks. For the first time, indices are being used explicitly to help orient investor choices and to redirect investment flows. Both indices are aligned with a 7% decarbonisation trajectory, in keeping with the Intergovernmental Panel on Climate Change’s scenario of a maximum 1.5°C increase. For the first time, indices will have a specific and absolute carbon reduction goal.
    Meanwhile, data requirements also argue for index-based investment. The sheer volume of data needed to ensure a portfolio targets a specific temperature scenario demands a quantitative investment approach. This is best achieved via an index rather than via stock-picked alpha. If we want to have a chance to shift capital at scale while doing it in a transparent and disciplined way, the passive approach has a clear advantage. 
  • Secondly, our fund managers and socially responsible investment team are uniquely placed to engage with the corporate management teams of the companies in which they invest. Far from being absentee landlords, we as index fund managers have total freedom to influence corporate behaviour through voting — in some ways even more so than active managers. 

2.

Influencing behaviour

We are invested in portfolio companies for as long as they are part of a relevant index. Rises or falls of an individual stock are therefore of no consequence — it is ultimately the tracking of the overall index that matters. In contrast, choosing to vote for a resolution which may help speed the transition to a more sustainable economy, but could hurt an individual company’s share price in the short term, can be a tough task for an active manager to take on. This is not to pit active against passive when it comes to voting, but only to stress that voting can be just as potent a tool in the hands of passive managers. 

Our voice in action – how we influence behaviour 

3.

Our latest engagement report
 

We have no axe to grind in this debate as we offer both products. As one of Europe’s largest ETF providers, and a responsible shareholder, we have a strong and active voice and regularly use our vote to make a difference for our clients. The inevitable growth of the ETF market will see that voice strengthen further and we will do everything in our power to help finance a greener economy and limit global warming to 1.5°C. 

The lowdown on our key campaigns & results 

4.

Walking the walk

So how do we go about being a responsible shareholder? Our shareholder engagement policy has the answers. Our voting policy: 

  • Lists the main principles of corporate governance to which the company adheres
  • Establishes Lyxor's general voting principles on key issues (not all voting issues can be known in advance)
  • Takes into account the regulations of the French Financial Market Authority (AMF) relating to voting policies of asset management companies
  • Adheres to the Recommendations on Corporate Governance of the French Asset Management Association (AFG), as well as the provisions of article R533-16 of the French Monetary and Financial Code relating to the shareholder engagement policy

Our shareholder engagement policy meanwhile is reviewed annually to take into account legal developments and any changes in corporate governance codes and market practices that may have occurred throughout the year. 

A 60-second guide to our 2020 activity

Committed, responsible shareholders

Everything you need to know about our Voting & Engagement Policy