BiGS Actionable Intelligence:
Harvard Business School’s Institute for the Study of Business in Global Society (BiGS) invited Yusuf George, co-head of active ownership and engagement at TCW Group, a $200 billion global asset manager, to participate in a recent leadership roundtable in the Washington D.C. area. I caught up with him afterward to discuss what his firm is seeing when they practice active ownership. The transcript has been edited for length and style.
—Barbara DeLollis, BiGS’ head of communications
What is active ownership?
With active ownership, we as investors spend time engaging with companies on issues that are material. You can do that through anything from proxy voting to engaging directly with companies one-on-one at the C-suite level or across the management team.
How important is active ownership these days as companies are looking to address societal issues?
It is critical. We are engaging directly with companies to understand how they’re mitigating their risks. That can be climate-related risks. That can be human-rights-related risks. That can be issues of workforce, training, benefits, etc. But also, we try our hardest to identify opportunities where there can be greater capital investment. This will hopefully drive longer-term returns for us as investors.
When you're going to engage a new company, what are some of the concerns they might have?
Well, one of the first questions we get is, ‘are you our biggest investor?’ The reality is we're not always. We try to present a really strong business case as to why it matters to them.
Can you give us an example?
Sure. I've spent a lot of time looking at the circular economy, this idea is that you should be using everything within the ecosystem. Republic Services is investing a lot of capital into plastic recycling because they believe there's a long-term benefit to companies that are going to be recycling. They foresaw the increased regulatory pressures and they said they’re going to create new facilities that enable companies such as Coca-Cola to be able to deliver high quality recycled plastics. We talked to Coca-Cola about this, and we said, ‘you have these targets to use recyclable material by 2030 and you're just not hitting them. What does it look like to work with a company like Republic Services to accelerate what you're doing?’ Republic Services, in one of its recent quarterly earnings, said that these facilities are going to add an extra $50 million in earnings. This is something that is great for the environment, great for those companies, but also great for us as investors. That's why we spend time doing this engagement.
That's a tangible outcome. Is it important for you to get that story out there to show others that it can be a positive opportunity?
Narrative plays a really important role in ensuring that companies understand what investors are looking for, investors like us.
How willing are companies to tell their stories?
There's always a benefit for companies to tell these types of stories, especially if it relates to the bottom line.
Do you think there's a reluctance among company leaders?
The more successful leaders understand that getting feedback is necessary to delivering on the promise of long-term value.
How do you see companies addressing human rights these days compared to 10 or 15 years ago?
Companies are more forthcoming in their reporting about the human rights-related risks that they are associated with.
What's triggered that?
Over the course of the last 10 years, we've seen a dramatic shift in companies being transparent. I think that is a product of stakeholders asking them to be transparent.
Can you talk about tactics that can help raise awareness in the corporate environment?
There are a number of ways investors are asking about issues they care about. One is directly on earnings calls through analysts. Another is through the use of shareholder advocacy. There are a lot of investors who are bringing forth shareholder proposals during a company's annual general meeting to ask about human rights-related issues.
Are board members prepared to have these conversations?
A lot of organizations like the National Association of Corporate Directors, as an example, provide tons of training for boards on these types of issues. Board members are equipped, but there's still room for improvement.
What advice do you have for your investor colleagues who are looking to address societal issues and have impact?
Stay the course. When you look at the investment profile of a company there tends to be noise at times. Things may move, but if you're looking at a company over three to five to 10 years, then you stay the course. You look at the fundamentals. You think about why you're invested in that company. You think about the risk factors. You try to manage those risk factors. Make sure that you are paying attention to wildfire risk and facilities. Make sure you're paying attention to human capital management-related issues.
How concerned are you about the upcoming net-zero goals that companies have for 2030 or 2040?
As an investor, I care about the targets that you're setting. But I care much more about the plans that you have to transition toward hitting said goal. What are the steps that you're taking to get there? How can I, as an investor, help to accelerate that?
There’s been a backlash against diversity, equity, and inclusion (DEI) lately in the United States. How are you seeing that play out through the investor’s lens?
These letters are getting wrapped up in a political lens. Whereas when we talk about strategies of inclusion for your workforce and inclusion leading to higher retention, that's a no brainer for companies. They're still instituting it. I believe the conversation is ongoing. But it has definitely lagged. I think it's important to bring up these issues.