Engagment and voting
Engagement can be used to encourage more responsible business practices. It usually takes the form of dialogue with companies or voting at Annual General Meetings (AGMs), and is typically carried out by fund managers on behalf of investors.
In this section:
What is engagement?
Reasons for engaging
Forms of engagement
Ways of engaging
Questions to ask fund managers
Voting
Shareholder resolutions
Further information
What is engagement?
Engagement is the process by which investors seek to maintain or improve corporate social, environmental, ethical (SEE) or governance policy, management or performance.
Reasons for engaging
Charities may wish to use engagement to:
- encourage more responsible business practices
- encourage greater transparency and disclosure
- influence corporate behaviour to further the mission of their charity
- find out what companies are doing in relation to areas of concern to their charity
- potentially improve investment returns by encouraging companies to manage SEE risks or to address new social or environmental business opportunities.
- fulfil their responsibilities as an active share owner (this refers to investors’ understanding of, and approach to, the broader responsibility of company ownership, the activities of the company and its role in society and the economy)
Forms of engagement
Engagement usually involves:
- dialogue
- negotiation
- gentle (or firm) persuasion
Engagement can take the form of
- informing companies how their actions will affect your charity client’s investment decisions
- encouraging and persuading them to improve certain policies and practices
- offering to help companies formulate a policy or improve an approach to an issue of concern (this may be particularly relevant for a charity with an expertise in a particular area e.g. an environmental charity helping a company create a policy on biodiversity)
Benchmarking the success of engagement is difficult. It is not always possible to determine the extent to which any company’s shift in policy and practice is due to any one investor’s engagement with it. But there is evidence that Company behaviour has been influenced by investor engagement.
Ways of engaging
Usually a fund manager will engage with companies on behalf of investors. This is typically done for financial objectives and charities may have to negotiate with fund managers if they want non-financial engagement.
Fund managers can take different approaches to engagement. It is possible to place different emphases and employ different strategies.
The database of funds and fund managers section gives details of the engagement approach of a number of leading fund managers.
Advisers may wish to use the list of questions to ask fund managers below to help ascertain which of their engagement approaches best fits with your charity client’s mission and reflects issues of concern.
It may be possible for charities to engage directly with companies, though this can be a time-consuming process.
It is also possible to undertake collaborative engagement in co-operation with other investors.
If applied discretely (i.e. not in combination with positive or negative screens) engagement means that any company within an investable universe can be purchased by the investor. Specific social, environmental, ethical or governance criteria can then be used to identify which companies to engage with.
Questions for Fund Managers on Engagement:
1) What is the focus and emphasis of the engagement policy? What are the main themes and priorities and how are they decided? What is the strategy to select companies for engagement? Does the engagement policy only apply to UK equities?
2) What engagement methods are used? Is it one-to-one meetings, letters, or attendance at company presentations?
3) What is the fund manager’s voting record at AGMs and EGMs?
4) What kinds of resources are devoted to engagement? Does the fund manager have a dedicated in-house team and/or purchase independent data?
5) How does the fund manager report on their engagement activities? How much information is made available to clients? (Good reports demonstrate that the fund manager has a full understanding of SEE issues and, equally importantly, how this impacts the company’s bottom line.)
6) How does the fund manager measure the impact of their engagement?
7) Is the fund manager involved in any Responsible Investment initiatives (e.g. member of UK Social Investment Forum, Institutional Investors Group on Climate Change, Responsible Investors’ Network, Carbon Disclosure Project or Enhanced Analytics Initiative)?
8) What independent review is there of engagement activity?
Voting
As shareholders, charities also have the opportunity to vote on a number of issues at company AGMs. Traditionally, shareholders have let fund managers decide on whether and how to vote, but voting is now increasingly seen as part of a shareholder’s duty as a responsible owner.
Awareness is growing of how voting can be used to influence companies. Voting can be used to communicate dissatisfaction to companies and the media.
Shareholder resolutions
Shareholders may file a special shareholder resolution to be voted on by shareholders at the company's AGM. In recent years, a few special resolutions have been filed on social and environmental issues including at BP, Shell and Balfour Beatty.
Such resolutions can highlight social or environmental issues to other investors. They can also send a signal to the company's management of the need for change if enough investors abstain or support the resolution.
Charities could work individually or collaboratively to raise shareholder resolutions and vote on the resolutions raised by others.
However, filing shareholder resolutions in the UK is a relatively difficult process due to the level of support needed.
Charities which own shares in the US could instruct their fund managers to vote on social and environmental resolutions filed there.
Further information
UKSIF’s online training course provides guidance on selecting an engagement approach and understanding how engagement can be applied in practice.
Eurosif Active Share Ownership Handbook
The Principles for Responsible Investment (PRI) Engagement Clearinghouse is the first global collaborative forum for investors to work together and share knowledge and resources to take action on environmental, social and governance (ESG) issues. PRI signatories use this password protected resource to post and seek collaboration for their ongoing engagement activities, from individual proxy proposals to large scale letter campaigns, and to learn and participate in other signatories’ proposals.
The Ecumenical Council for Corporate Responsibility (ECCR) works to:
- encourage companies to adopt and maintain the highest standards of corporate responsibility in all aspects of their business, and express concern when they do not; and
- uphold these same high standards through responsible investment and use of their own resources.
The Interfaith Center on Corporate Responsibility (ICCR), based in the US, has a membership of 275 faith- based institutional investors, including national denominations, religious communities, pension funds, foundations, hospital corporations and colleges. ICCR and its members press companies to be socially and environmentally responsible. Each year ICCR- member religious institutional investors sponsor over 200 shareholder resolutions on major social and environmental issues.
