Passive Investing: How to deal with the growing trend of passive shareholders?

According to Q4, Passive investments continue to rise. In the past 10 years, for example, unbelievably high inflows of funds into passive investment vehicles have been observed. How does passive investing change the composition of shareholders and influence the daily work of IROs? According to Karen Greene, IR Partner at Q4, one of the key changes is the increase in a large proportion of voting rights holders that cannot be influenced. Passive investors do not want to attend meetings with management. Nevertheless, according to Greene, passive investors and their compliance officers should be met at least once a year as part of a roadshow. It is important to address the topics of remuneration and governance aspects and to identify possible pitfalls with regard to ESG. It is important to know the position of the investors many months before the annual general meeting.

And especially when there are fewer and fewer active investors, it is enormously important to have a strong IR program that communicates effectively with the fewer and fewer active investors.

Victoria Sivrais, Founding Partner at Clermont Partners, recommends 3 ways to reach active investors:

  1. Simplify the story and make the documents “Shareholder friendly
  2. Understand the pitfalls of new investments. What are the obstacles that can prevent investors from investing in stocks?
  3. Work out what sets one’s own share apart from other shares.

ESG is also a central topic in the area of passive investments. If a company wants to attract attention from ESG ETFs, it is crucial to deal with the topic, place ESG factors on the website and look at the perception of one’s own company in the ESG world. For this you should look at the ESG ratings of your own company in Sustainalytics, ISS ESG and RobecoSAM and take a bad rating as a starting point for improvements in ESG.