Engagement is the process through which investors use their influence to encourage companies they invest in to improve their management of ESG issues. 

This may, in turn, improve companies’ financial performance and the long-term performance of investment portfolios. This “active ownership” corresponds to the second of the six Principles to which all signatories of the United Nations-supported Principles for Responsible Investment (PRI) subscribe: “We will be active owners and incorporate ESG issues into our ownership policies and practices.” It also corresponds to Principle 3, which encourages investors to press for good ESG disclosure by investees, and Principle 5, which encourages investors to work together with other signatories to enhance their effectiveness in implementing the principles.

Tips for successful collaborative engagement 

Collaborative engagement, when done well, can enhance investors’ influence, build their expertise, and improve efficiency of the engagement process by sharing the workload and costs. The following tips are useful to ensure the success of an initiative:

Laying foundations for success within a collaborative group - the four Cs:

  • Commonality - a clear shared understanding of the ESG issue at hand, and the rationale for working collectively to address it, can avoid disagreements among group members later in the process.
  • Coordination - matching the group’s resources to the scale of the initiative lays the foundations for success. A third party coordinator can facilitate the work of the group.
  • Clarity - a shared understanding among an investor group of ground rules - for example what information can be made public - helps to build trust and avoid miscommunication.
  • Clout - regular communication between responsible investment specialists and portfolio managers can enhance the clarity and strength of the message companies receive.

Key considerations in the engagement process:

  • Research and preparation - a successful dialogue relies upon a well-informed investor group with a solid understanding of the unique characteristics and circumstances of the company, the materiality of the issues, and the business case for the company to act.
  • Clear common goals - agreed goals enable an investor group to track changes in company performance over time and evaluate the progress of the collaboration.
  • Commit resources - successful engagement often requires sustained effort. Group members should be prepared to put time and energy into the dialogue, often through a series of meetings over an extended period of time.
  • Escalation strategy - agree as a group on the strategies you may pursue to escalate engagement, in cases where the company is not open to dialogue or where dialogue has not been constructive.
  • Consider policy engagement - engaging with policy makers can often complement company dialogue. Policy change, where achieved, can create an environment conducive to change among companies.
  • Evaluate outcomes, and consider communicating them - where possible, publicly highlighting engagement outcomes and lessons learned can encourage other investors to collaborate and demonstrate to other companies that shareholders take ESG issues seriously.