Constructive corporate engagements: From a corporate perspective

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Background

“Engagement is a key tool for investors wanting to exercise responsible stewardship over the assets they manage on behalf of clients and beneficiaries.  But when done badly it is also a source of frustration for companies and investors alike. This new report from First Sentier MUFG Sustainable Investment Institute and PwC combines findings from academic research on engagement with insight based on the experiences of corporate practitioners in seeking to answer the question: what makes for a constructive and effective corporate engagement? This has led to robustly founded conclusions that can be applied in a practical way by investors to improve outcomes of their engagements with companies. It is therefore essential reading for investors seeking to use corporate engagements to deliver positive results for all parties.”

Dr Tom Gosling | Executive Fellow | London Business School

Links between investor engagement and changes on the share price, financial performance, and environmental and social performance have been widely researched; however little research has been done to identify the specific characteristics of an engagement that trigger companies to act. Based on a review of academic literature, company survey, and executive interviews, this report seeks fill this gap by identifying the characteristics of the most effective engagement approaches and behaviours that shareholders can adopt to change a company’s behaviour, strategy, or policy.

Key takeaways

  • There is no universally accepted definition of a successful engagement. We define a successful engagement as an engagement which results in a meaningful change in corporate behaviour, strategy or policy.
  • The company survey results show that 96% of companies view shareholder engagements positively. Companies are willing to act in response to shareholder requests, even if those requests require substantial action.
  • Most companies experience little confrontation: 70% of survey respondents indicated that their engagements were rarely or never confrontational.
  • The issues leading to most engagements are related to audit or financial reporting (63%) and the company strategy or performance (60%). At the same time, standardised engagement topics (ESG-related, in particular) are on the rise. The responses indicate that companies and investors are still grappling with how to engage on ESG topics effectively, taking into account the complexity of the issues and the heavy data requirements.
  • The report identifies key factors which maximise the likelihood of a successful engagement, as well as features typically leading to unsuccessful engagements. On that basis, the report proposes recommendations on the engagement approaches shareholders can adopt to ensure that their engagement leads to company action.