Quality communication, relevance to the company and a strong shareholder consensus are the most important factors for successful engagement with companies, First Sentier MUFG Sustainable Institute has found.
In a report published yesterday, Constructive corporate engagements: From a corporate perspective, which is based on a survey conducted by PwC, the Institute addressed the need for investors to provide evidence for how they exercise their stewardship rights and obligations, and the outcomes these actions produce. This is to determine what needs to change in a company’s behaviour, strategy and policy.
It found the quality of communication between shareholders and companies to be the most crucial factor. In more than half (51%) of engagements that led to action, shareholders engaged face-to-face rather than relying on proxy advisers.
Sudip Hazra, newly appointed director of the Institute, said: “Writing an investor letter and hoping for the best does not lead to change. Companies want to build meaningful relationships, and they want to know that the people driving the engagement deeply understand the issues.”
The report also found that not all proposals need to be driven by financial gains. In half (50%) of cases, a company took action because it believed this would significantly increase stakeholder benefit at a low cost to the company. However, one of the key factors in successful engagements is addressing the costs of inaction.
Companies will be more motivated to take action if there is a larger shareholder consensus. Hazra noted the power of collaboration, particularly between shareholders, to strengthen proposals.
He stated: “Two-thirds (64%) of companies in the survey preferred engagements where shareholders collaborated over those involving a single investor”.
The report concluded with recommendations for shareholders to increase the success of their engagements. This includes:
- Building trust and mutual understanding with companies
- Discussing engagement objectives and success metrics upfront
- Collaborating with other shareholders
- Holding direct, private and face-to-face engagements
Kate Turner, global head of responsible investment at First Sentier Investors, added: “We cannot simply divest our way out of issues such as climate change, so engagement is an essential part of driving positive change. However, engagement comes in many forms, and this research provides a valuable blueprint for investors and asset owners who want to make a difference and engage successfully.
“We are all putting a lot of time, energy and resources into engagement, so let’s ensure we are meeting companies where they’re at, and providing considered, relevant and meaningful suggestions.”
The First Sentier MUFG Sustainable Investment Institute is jointly supported by First Sentier Investors and Mitsubishi UFJ Trust and Banking Corporation.
