Retail investors are going green – companies should start paying attention

Slapping on some green paint and calling it a day isn’t enough to repair a battered reputation – customers are starting to expect more, writes James Moore

Investors snubbed Deliveroo’s float, as ESG issues become more and more important to investors

The customer base of Interactive Investor (II) is made up of people who tend to be actively engaged with and interested in money, specifically their own. 

How, then, would these people respond when asked about the ESG (Environmental, Social & Governance) issues companies increasingly want us to believe they care about?

The private investor platform decided to ask the question with respect to Rio Tinto, a natural resources outfit and one of the biggest FTSE companies that lots of people have never heard of. 

Before getting to the results, a bit of background is in order. Rio has had its fair share of scandals. The most recent of those was at Juukan Gorge in Western Australia, where the company blew up some 46,000-year-old caves as part of an iron ore mine expansion. This outraged the Aboriginal owners and led to a public outcry and a national inquiry. It ultimately cost three top executives and two board members, including the chair, their jobs.

One way of restoring a battered corporate reputation these days is to wash it with a little green paint.

Read more:

• Why we need to take a hard line on greenwashing 

At the end of last month, Rio went a little further than that, backing a push by some of its shareholders to require the company to set emissions targets consistent with the Paris climate agreement and also to suspend its membership of industry associations that lobby against action on the climate crisis. These are, regrettably, not uncommon in the natural resource sector. 

Rio has also outlined what it calls “a more explicit link between executive remuneration and climate change goals and targets” and promised to play nice with indigenous people in future.

They say beauty’s only skin deep and the same is often true of ESG, so all this will require careful monitoring. But Rio bailing on bad lobbyists, setting itself targets and explicitly linking them to executive pay comes dangerously close to taking steps that could be considered concrete. 

Which brings us back to the question: how would Interactive’s hard-headed, return focussed customer base react? Quite well is the answer. 

Of the 1,077 visitors to its website who responded to its questions, more than seven in 10 (72.2 per cent) said that they would support the climate change proposals. A further 19 per cent of them believed there was no point in voting because the motions would be passed anyway, and 9 per cent said they would vote against.

More broadly, 71.5 per cent said they were prepared to say that they believed “that chairpersons and CEOs should be held to account from an ESG perspective”.

Now, it should be stressed this wasn’t a scientific poll. But it’s still interesting because we’re talking here about the responses of a rather specific customer base which, as a group, you would expect to be unusually keen on capitalism and motivated by investment returns above all else. 

It hints that private investors may be as supportive of a more enlightened attitude towards ESG as are at least some of the big institutional money managers, and the UK and European ones in particular. 

One way of restoring a battered corporate reputation these days is to wash it with a little green paint

Several of them notably snubbed Deliveroo’s recent float, having first publicly voiced concerns over the treatment of its self-employed riders, who’ve been battling for more rights. 

This had an impact. The shares were priced at the bottom end of the range set by the company, but that wasn’t enough to prevent them from falling sharply upon their debut. The word “disastrous” is now being applied to the flotation. 

The next step would, obviously, be for institutions to start submitting ESG focussed resolutions off their own bat rather than leaving it to activist groups to do the hard work and then joining the party, which is what mostly happens now.

But if III’s research is correct, they ought to at least be able to count on the backing of retail investors if they did that. 

Such moves would certainly help put companies on notice that greenwashing the annual report with some pretty pictures will no longer cut it. There’s still a lot of that going on.