Responsible investment in the UK is fighting the wrong battles

The UK recently released its Modernising Corporate Reporting consultation. On the grounds of reducing reporting burden and administrative costs for companies, it has proposed reducing obligations for companies to provide details on their impacts on stakeholders listed under section 172 of the Companies Act, as well as the ratio of CEO pay to the median employee. It would scrap annual Say on Pay votes. It also enables companies to hold virtual-only AGMs, subject to shareholder approval.

The consultation (and other recent corporate governance rollbacks in the UK) touches on two big questions, important for investors and broader society.

The first issue is the future of corporate accountability. By removing mandatory shareholder votes and the requirement to hold in-person meetings, the consultation appears to be removing avenues by which shareholders and others can challenge management decisions, and has not proposed replacing them with anything. In theory this could make it harder to hold companies accountable for negative impacts.

The second issue is stagnant living standards and inequality. Many of the disclosures that will be removed relate to how corporate profits are shared among workers and other stakeholders. The UK is one of the most unequal countries in Europe, a factor which may be contributing to political instability and weak economic growth.¹ In theory, removal of these disclosures could make it more difficult to understand the role the corporate sector is playing with respect to inequality.

On paper I would be a textbook opponent to the proposed changes. My first direct role in ESG was issuing shareholder voting recommendations on Say on Pay votes for one of the two major proxy advisors. I went on to lead UK policy engagement efforts at the Principles for Responsible Investment, and then was its head of Active Ownership 2.0, PRI’s advanced systemic stewardship framework. I was also fairly obsessed with corporate and investor accountability, believing this was an area where we needed to do more work.

Yet the proposed changes don’t stir outrage or dismay in me. They make me hopeful that we have an opportunity to finally move beyond a theory of change that has delivered next to nothing.

This essay is in 5 parts:

1. An analysis of how the introduction of the disclosures have affected outcomes.

2. A look at stewardship in the UK, and whether cultural and structural barriers are hurting accountability.

3. Popular solutions to the challenges of accountability and inequality in the UK, and their shortcomings

4. Tools that could give employees greater power within companies, and how that could affect outcomes

5. How investors’ approach to policy engagement often locks in bad outcomes, and why now there’s an opportunity to do things differently.