As impact investors seek to match their financial returns with measurable societal and environmental benefits, they sometimes opt for a more proactive approach. Engagement strategies can offer investors more say in the corporate policies and actions that affect performance on impact and financial goals.
What Is Shareholder Engagement?
Shareholder engagement is the process by which investors in public companies leverage their position as shareholders to influence corporate decision-making. It can take a variety of forms.
One approach involves voting on shareholder proposals and resolutions at annual general meetings. Proxy voting may change companies’ behaviors on governance and sustainability depending on the investor’s stake in the firm and the way other shareholders vote. Institutional investors, who own the majority of shares, are more active in proxy voting than individual investors.
Other investors choose a less formal and more collaborative approach, opening up a dialogue with companies behind closed doors. In some cases, this dialogue can be supplemented by more public declarations like open letters and presentations.
Shareholder Engagement and Impact Investing
As impact and environmental, social, and governance (ESG) investing grow, so too does the attention paid to shareholder engagement on a wide range of issues, from corporate diversity and executive compensation to sustainability reporting and supply chain analysis.
Filing and voting on shareholder resolutions at companies’ annual general meetings can lead to constructive discussions, if not outright success. Of course, investors may have to be persistent to make real waves. For example, after repeated attempts, in 2017 shareholders passed a vote asking Occidental Petroleum to report on the risks climate change poses to its business.
There is still debate over what form of shareholder engagement is most effective at driving change. Some have criticized BlackRock and other asset managers for having proxy voting records that do not match their sustainability rhetoric, while BlackRock points out that its stewardship philosophy stresses “direct dialogue with companies” over proxy voting.
Considering that regulatory measures can pose challenges to the proxy voting process, impact investors who seek to engage companies on sustainability issues may be glad to have a variety of tools at their disposal.