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Class actions: an investor’s socially responsible duty?

A Scandinavian bank is currently in the news because of money laundering practices. An incorrect application of anti-money laundering procedures of a foreign branch of the bank resulted in a new anti-money laundering scandal. As soon as this news became public, the bank’s share price dropped by 27%, impacting many investors. Class actions are being pursued against the bank and impacted investors can easily register to participate. The thresholds for participating in class actions are becoming lower, making participation increasingly more attractive.

15 Feb 2019

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Why would an investor participate in a class action?

In addition to compensation for losses suffered, the main reason for European investors to participate in class actions are environmental, social or corporate governance (ESG) factors. Active shareholders discuss ESG concerns with the company in which they invest, in order to preserve long-term shareholder value and enhance long-term returns. The Shareholders Rights Directive II (SRD II) requires institutional investors and asset managers to be transparent about the companies they invest in, and to communicate annually on how they integrate active ownership into their investment policy. Class actions are an important pillar in the implementation of their responsible investment policy.

By taking collective legal action, investors can hold companies accountable for their policies. A class action is not only a means of obtaining monetary compensation. It's also an important instrument to stimulate action to encourage a company to pursue its social responsibility for good governance. Repetition of abuses can be prevented in the future by active ownership. By participating in class actions, investors can show that they are seriously involved with a company’s strategy and execution.

Additionally, institutional investors manage the collective assets of many stakeholders. By taking part in a class action, they stand up for the interests of their stakeholders. Pension funds, Local Government Pension Schemes (LGPS) and insurers should therefore define a policy on when they participate in a class action. Being an expert on lawsuits is useful when participating in class actions, but certainly not a requirement. This is because there are multiple specialised companies that file, negotiate and settle class actions.

Is it not inappropriate to participate in a class action?

When deciding to take part in a class action, it's not unusual to find that some investors find that it is a difficult decision to pursue action against a company. A justified point, but one that loses ground now that active ownership and a socially responsible investment policy is becoming increasingly important. A socially responsible investment policy is often formulated to exclude types of organisations, activities or products, because it is not in line with the responsible investment policy. However, what needs to be considered if a company that was initially regarded as 'good' does something that is unacceptable? In this context, that would go against the responsible investment policy and can lead to a loss of value for the investor. Participation in a class action is then a logical next step.

Learn more about our ESG solution

We offer investors the solution to participate in class actions with minimum effort and maximum flexibility. We offer support in participating in class actions or submitting claims.

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Pol de Jaeger

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Pol de Jaeger

Business Development Manager
+31 (0)20 557 2293