Shareholder engagement: a way to enact change and create value
February 2021
Most people think of responsible investment as a way to support businesses that meet specific environmental, social or governance (ESG) criteria. But there's more to it than that. It can also help shape the way businesses behave by encouraging them to make decisions that ultimately lead to a better society.
Over the past decade, the use of shareholder engagement has risen sharply in the United States and Canada, prompting the questions: Is this growing popularity justified? Does shareholder engagement work?
A choice approach
Shareholder engagement refers to all the ways that shareholders can influence the companies in their investment portfolios. They exert their influence through three main techniques: proxy voting, shareholder dialogue and shareholder proposals. Research and our own experiences have both shown that shareholder engagement is an effective tool for raising awareness among companies and helping them implement best practices to address today's most pressing issues.
Shareholder engagement relies heavily on communication and mutual trust between stakeholders. It helps the company's board of directors and senior management better understand investor expectations regarding ESG issues, as well as their effect on financial viability. At the same time, it allows the company's representatives to present their organizational culture to investors and explain the operational and commercial factors that influence their strategic long-term value creation goals.
Shareholder engagement or divestment?
There is no such thing as a perfect company. Different investors may have different standards, and perceptions also shift over time. Seen through the rear-view mirror, today's common practices may be considered unacceptable—maybe even sooner than we think. Unexpected incidents might also occur, marring a company's reputation. These factors demonstrate the importance for investors to exercise their rights as shareholders, instead of immediately divesting from the company. In this way, investors can adopt a responsible strategy that takes a company's current practices into account, but also gives them the option to seize opportunities and enact positive change.
Want more information on shareholder engagement and our approach?
Read our white paper on shareholder engagement (PDF, 935 KB)
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The information in this article is for illustrative purposes only. It should not be considered as investment advice, as a recommendation to buy or sell securities or as a suggested investment strategy.