11. Shareholder Engagement —Dialogue with Companies Andrea Gäumann
Consultant, BHP—Brugger and Partners Ltd.
Regula Simsa, CFA
Consultant, BHP—Brugger and Partners Ltd.
In addition to established SRI strategies—such as the application of exclusion criteria, best-in-class approaches, or the extensive integration of ESG factors into financial analysis (see chapters 7, 8, and 9)—shareholder engagement is becoming an increasingly important approach for institutional investors. Shareholder engagement not only includes the exercising of voting rights (see chapter 10) but also the active interaction of shareholders with portfolio companies regarding ESG themes. As legitimate stakeholders, shareholders are entitled to protect their own interests. According to the definition provided by Eurosif,1 engagement is part of a long-term process in which shareholders attempt to influence a company’s business conduct. This is done in order to improve governance, give greater consideration to environmental and social aspects, or encourage more transparent information—thereby improving the company’s ability to deal with long-term challenges. The central aspect is dialogue between the management of the portfolio company and investors (or their representatives). This approach is based on the assumption that engagement helps increase enterprise value, since ESG criteria also have an impact on value creation and allow such other factors as reputation risks to be controlled more effectively. Besides influencing business practices through engagement, the focus may also be to obtain additional information. Through their dialogue with companies, portfolio managers obtain insights that enable them to understand or assess the business models more effectively.
Shareholder Engagement: Background and Development Engagement as part of active equity ownership is based on the classical principal/agent theory. Institutional asset managers, such as pension funds or fund managers, must ensure that the board and management of investee companies act in the best interests of the shareholders they represent. According to the second principle of the UN-supported Principles for Responsible Investment (PRI), 2 responsible investors make the following
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