Engagement
How we use engagement, collaboration, and policy advocacy to protect and enhance your investment.
The purpose of engagement
Engagement is a lever of influence across all investments. It is an important tool for active owners as it presents the opportunity to have a dialogue with companies with the aim to protect and enhance long-term value. Engagement allows investors to assess how companies are responding to important issues, ask questions and raise concerns.
There are different types of engagement, which can be used to either have ongoing discussions with companies or have more focused dialogue based on priority sustainability or governance issues. Investment Managers will have a process for company engagements to ensure that where any concerns or issues have been raised a plan can be agreed with milestones and agreed outcomes.
Not all company engagements are successful, reflecting the limits of investor influence on Boards and Management teams in large publicly listed companies. Where engagement has failed investors may choose to escalate through voting rights or for actively managed funds choose not to continue to invest. Passive funds, which are investing in a specific market or index will not be able to divest from a company held by an index.
Collaborative engagement can also be used as an important lever for change, with investors working with others and as part of industry led groups. These efforts focus on important system-level and priority sustainability issues where greater influence can be achieved through shared resources and knowledge to create a unified voice on an issue.
There are a number of large investor-led collaborative engagement routes:
- Climate Action 100+: targeting the world’s largest corporate greenhouse gas emitters to ensure they take necessary action on climate change
- Nature Action 100: targeting the 100 companies driving the most severe biodiversity and habitat loss
- UN PRI Advance: focusing on human rights and social issues in the renewable energy and mining supply chains
Successful engagement is more than discussions with companies, it should result in tangible, measurable changes in behaviour, strategy, or governance that either protects or enhances long-term financial value.
Outcomes of successful engagement can achieve:
Enhanced reporting or transparency: improving companies measurement or disclosure of risks and reporting against globally recognised standards
Governance and leadership: improving who is making decisions, how they are incentivized and aligning with globally recognised standards of corporate governance and behaviour
Strategy change: working to improve companies future plans to better align with the protection of the environment and/or people
Financial protection: working with companies to protect long-term value by aligning with regulatory expectations and responsible business practices
Investors can also leverage their voice using policy advocacy, which requires working with governments, regulators and global standard-setters. This moves away from progressing on priority sustainability and governance issues at a company level and focuses on the system to support companies in planning for the future and making responsible decisions.