Learn about the factors that influenced a significant growth in the adoption of responsible investment approaches and allowed investor engagement to reach maturity.
Mounting evidence of the link between ESG factors and financial performance, as well as the increasing threat from environmental and social challenges to global prosperity, drove rapid growth in responsible investment approaches, and investor engagement matured considerably. Adding to the pressure, regulators took notice and leading asset owners became more demanding of their managers. Major industry players responded by expanding the range, scope and depth of their engagement activities.
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“Over the two decades we have run an ESG engagement programme, we have seen more and more companies come to the realisation that if they work together with investors, both sides can reap the benefits in terms of long-term performance.”
Juan Salazar, Director, Responsible Investment
Juan Salazar, Director in the Responsible Investment Team, discusses our engagement in the emerging market space with specific reference to the dairy industry.
The 2010s also saw greater attention being paid to the question: what happens if one-on-one engagement fails? Selling the holding was not always an attractive option, as it could mean losing influence and the opportunity for future dialogue. Investor engagement therefore matured to utilise escalation strategies to trigger corporate reaction – explore these below.
Expressing concerns collectively with other investors can help get companies’ attention.
Voting against management on key resolutions sends a clear signal to companies and might help with further engagement efforts.
AGMs offer the opportunity for direct, public dialogue with boards and top executives. Interventions at AGMs can also trigger further dialogue with a company, paving the way to more in-depth engagement on an issue.
These can be a key rallying point of an engagement campaign to change companies’ behaviour. We will typically support requests to improve board accountability, executive pay practices, ESG-related disclosure and climate change action where we agree with both the issue highlighted as well as the implementation proposed.
Selling a holding can be a powerful signal of dissatisfaction, though it removes some options for future interaction such as the use of the vote. It is often a measure of last resort.
David Sneyd, Vice President in our Responsible Investment Team, discusses our engagement efforts with Amazon and how we continue to advise them on focusing on ESG factors.
Our in-house data system records every instance of engagement with companies, with records going back to 2006.
| ESG theme | Engagement | Milestones | ||
|---|---|---|---|---|
| No. | % | No. | % | |
| Corporate Governance | 14,584 | 37% | 2,039 | 54% |
| Climate Change | 6,395 | 16% | 673 | 18% |
| Enviromental Standards | 5,142 | 13% | 379 | 10% |
| Business Conduct | 4,747 | 12% | 226 | 6% |
| Labour Standards | 3,868 | 10% | 205 | 5% |
| Human Rights | 2,834 | 7% | 171 | 5% |
| Public Health | 1,447 | 4% | 52 | 1% |
| Total | 39,017 | 3,745 | ||
| Region | Engagement | |
|---|---|---|
| No. | % | |
| Europe | 10,185 | 41% |
| North America | 6,810 | 27% |
| Asia (ex Japan) | 4,085 | 16% |
| Japan | 2,092 | 8% |
| Other | 1,912 | 8% |
| Total | 25,084 | |
| Level | Engagement | |
|---|---|---|
| No. | % | |
| Investor Relations | 3,635 | 34% |
| Board director(s), non-executives(s) | 3,205 | 30% |
| Senior Executives | 1,846 | 17% |
| Operational Specialist | 1,490 | 14% |
| Other | 619 | 6% |
| Total | 10,795 | |
All data as at 31-Dec-19. Figures are subject to rounding and therefore may not equate to 100%. Milestones achieved are not guarantees of future engaged company, firm, or product performance.
Collaborative engagement action came of age in the 2010s as investors recognised and experienced its benefits. A unified voice helps investors communicate their concerns whilst gaining power and legitimacy from the perspective of corporate management.
Whilst equities remain the most common asset class to apply an engagement approach to, the past decade saw rapid development of engagement elsewhere, including fixed income, private equity and real estate. Investor engagement also began to spread beyond developed markets as major investors increasingly recognised that these countries are highly exposed to ESG-related issues, such as climate change and corruption.
