Shareholder Engagement

This chapter focuses on shareholder engagement, a subset of sustainable finance dedicated to the unique role that investors can play in influencing a company’s strategy in areas of sustainability. Pension funds, mutual funds, foundations, wealth managers, insurance companies, and other institutional investors control most of the capital invested in listed equities globally. Shareholder engagement by US and European pension funds on environmental and social issues is increasing rapidly. The chapter describes a broadening of the mainstream shareholder engagement agenda, from traditional governance and strategic financial issues, to include environmental and social drivers. This is potentially one of the most profound shifts in institutional investment seen over many years and may significantly increase the role of investors in moving the corporate sector, and ultimately society, toward a more sustainable future. While traditional shareholder activists focus exclusively on the financial performance of individual firms, ESG engagement can also address economywide and systemic sustainability issues. The chapter traces the origins of shareholder engagement and explores its primary strategies and tools. It raises the critical question of whether shareholder engagement works. One convenient mechanism (primarily relevant in the US) that indicates whether shareholder activism has been effective in changing corporate behavior is the number of resolutions withdrawn after successful negotiation in advance of going to a vote. The chapter concludes by emphasizing that although shareholder engagement may not be the highest profile strategy within the sustainable investing space, given recent evidence of its efficacy, its scalability, and its potential for delivering financial returns, its importance should be elevated in the future.