A Unique Approach for Every Company
Assessing and Tracking Engagement
We systematically track engagement outcomes in various ways. First, we track Positive Developments, defined as new initiatives that engaged companies have implemented with reference to our Suggested Actions. These are tangible results improving ESG risk management and/or performance. Second, the Sustainalytics Research Team conducts regular reviews of the ESG Risk Rating, reflecting the changes in the quality of management of material ESG issues.
A concrete example of how MRE drove impact in 2021 is climate change, a recurring theme in about three out of four MRE dialogues with companies. All industries and companies can be exposed to this systemic risk to various degree and through different parts of their value chains. By referencing the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD), our Suggested Actions address first and foremost companies’ approaches to managing climate risk – for example, risk assessment and disclosure, carbon emissions monitoring etc. As the commitment to addressing climate risks and risk governance structures mature, we would then emphasize the importance of developing measurable targets to improve performance. While MRE is a relatively young product, only officially launched in early 2020, we already see companies advancing their climate risk management and performances with numerous Positive Developments.
During 2021, 225 Positive Developments were recorded. As shown in the below chart, of the 51 climate-related ones, 29 pertain to developing climate targets, ten on corporate initiatives to address climate change (e.g., energy efficiency programs), eight on the commitment to aligning disclosure with TCFD or enhanced risks disclosure and four on better transparency on carbon emission and capex data.
The ESG Issues in Focus
Source: Sustainalytics
Impact as an outcome may sound abstract, but Material Risk Engagement is a tangible method to illustrate the ability to reduce negative impacts and generate positive ones. The engagement strategy focuses on sound and robust risk management at the company level. MRE is designed to raise companies’ awareness of their material ESG issues and that they should respond proactively. By doing so, a company will be much better positioned to manage its real-world impacts—for its stakeholders, the environment, or the community—on its own and in collective terms, thus becoming part of the solution to the sustainability challenges that urgently need corporate contribution. With more than 200 Positive Developments in the past year, our engagement is making a difference, guiding companies to address sustainability challenges and ESG-related risks. We continue to drive ESG impact—one company at a time.
Material Risk Engagement is part of Sustainalytics' Engagement 360—an integrative stewardship solution that combines all of Sustainalytics’ engagement programs in one bundle. This service offers institutional investors a comprehensive approach to address systemic risks and underlying ESG issues in their portfolios. Click here to learn more.
*All information is sourced from 2021 Material Risk Engagement activities.
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