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The Stockholm Stewardship Roundtable: A Practitioner’s Notes on Managing Investor Engagement Today

Posted on May 14, 2024

Joris Laseur
Joris Laseur
Associate Director, Stewardship

Key Insights:

  • Engagement is still an emerging discipline with a steep learning curve. It requires adaptability from both investors and issuers as they work through the process of dialogue. 
  • Engagement professionals must also be persistent in order to build relationships and influence.  Personal relationships with issuers’ investor relations and sustainability managers can make a substantial difference.
  • Differences in mandates and even differences in personal styles mean that there is not any single, best, one-size-fits-all engagement strategy.

 

As concerns about greenwashing grow, investors are increasingly focused on ensuring that their portfolio companies not only uphold their sustainability pledges, but also generate substantial long-term economic value. In this context, stewardship has been a pivotal instrument.

Stewardship, also known as active ownership, broadly refers to the strategic use of influence by institutional investors to preserve and enhance the value of assets with which they have been entrusted. Engagement, or active dialogue with a specific objective, can play a crucial role in a stewardship strategy – allowing investors to push for sustainable practices in the companies they back. But it is a practice that comes with its own set of challenges. 

A critical obstacle for those practicing engagement is the inherent difficulty in achieving measurable, substantial, and immediate positive outcomes. With direct positive impact generally being difficult to attain, how can the practice of engagement thrive? This was the question on the minds of six engagement practitioners at our local roundtable meeting in Stockholm on April 15, 2024. We reflected on our mandates and explored what it takes to successfully engage with large, global companies. Our discussion yielded interesting discussion points on the added value of engagement.

Note One: Sustainable Development Is Hard To Achieve and Engagement Is Still an Emerging Discipline

Engagement is still an emerging discipline with a steep learning curve. It requires adaptability from both investors and issuers as they work through the process of dialogue. And they are making progress. Companies are increasingly proactive, pre-empting investor inquiries through comprehensive sustainability reporting. At the same time, investors are using engagement to make better-informed investment decisions and to strategically pick their battles when it comes to influencing companies on their management over ESG issues.

But in the absence of regulation and dedicated training, ESG engagement managers have been figuring out for themselves how to best make a difference. As a result, the profession has seen its practitioners experimenting with the different levers at their disposal, ranging from diplomatic dialogue to public escalation. 

While some engagement managers are helping investors pursue green growth and others a socially just transition, there is growing acknowledgement of just how difficult achieving these goals can be. This is a challenge that different engagement practitioners deal with in their own ways. Some lean into their passion and never really switch off their professional selves, appreciating that their work is present in so many aspects of life. Others require a clear separation between their public and their private life, to stay sane and preserve their passion for sustainability in the corporate context. 

Note Two: Engagement Needs to Be Efficient and Persistent

It is fair of issuers to expect any engagement dialogue to be efficient and well organized. But it is not enough just to be efficient. Engagement professionals must also be persistent in order to build relationships and influence.  Personal relationships with issuers’ investor relations and sustainability managers can make a substantial difference. Relationships build trust, which becomes invaluable especially when challenges arise, allowing for cordial and more productive engagement.

However, even the best engagement professionals can still struggle to meet eye-to-eye with companies. Some companies have yet to advance their accountability beyond their annual reporting and to leverage open dialogue with investors to inform decision making. Despite this, it is essential to continue pressing for engagement. Persistent efforts shouldn’t give in to a simple “no.” Should responses to issues raised by engagement managers remain inadequate, leveraging negative publicity and highlighting potential undervaluation can be effective in nudging companies towards more collaboration.

Note Three: There Is No One-Size-Fits-All Engagement Strategy

Differences in mandates and even differences in personal styles mean that there is not any single, best, one-size-fits-all engagement strategy. Some engagement professionals excel as advocates, using public platforms to drive change, while others are better diplomats, opting for a more discrete approach to influence business conduct. Both strategies stand at opposing ends on the spectrum of engagement tactics, and are vital for the robustness of a global investment stewardship ecosystem – including approaches that fall somewhere in between.

While one investor might leverage public pressure to enforce specific change, another could adopt a more holistic perspective, holding companies accountable through a more nuanced strategy. Both methods, though distinct, can be seen as complementary ways of achieving effective engagement.

Takeaways From the Roundtable

It would be a mistake to discount engagement as a responsible investment approach due to a lack of direct impact. Now that all stakeholders are learning how challenging it can be to pursue truly ambitious sustainable development aspirations, engagement offers opportunities to keep learning about the interconnectedness of business and sustainability and to figure out how to allocate capital better. The roundtable meeting reinforced our sense of community and how diversity in mandates and personal styles can contribute to the sustainable development agenda. 

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