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Investment choices can do more than make a statement about a company’s appeal. Investors are using their voices more than ever to influence companies’ environmental, social and governance (ESG) practices. It’s happening through shareholder engagement, which includes dialogue with companies, shareholder proposals and proxy voting.
It’s a way to make your money talk, which is why shareholder engagement is an integral part of responsible investment, says Marie-Justine Labelle, Head of Responsible Investment at Desjardins Investments Inc.
“This type of engagement is about building relationships with companies, setting out clear expectations and then following up with a demand for action,” Ms. Labelle says. “That’s how we can evoke change.”
Beyond that dialogue are shareholder proposals, which take the form of non-binding recommendations. That’s a way to make a company (and all shareholders) aware of a specific focus on ESG factors.
Investors can also make their demands known through proxy voting, which gives them input on aspects of a company’s financials and operations. This is a method that investment funds employ to promote positive change or to express concerns.
“We actually voted against candidates for the board of directors from 841 companies because women’s representation on the board was below 30 per cent,” Ms. Labelle says.
It sends a clear message to the company, and the market, about which values are important, she adds.
Driving action on climate
While a single investor may not have sway, there’s strength in numbers. “Pooling a large number of investors together to engage with a company can increase success,” Ms. Labelle says.
That’s evident in Climate Action 100+, an investor-led initiative that started in 2018. It was developed as an opportunity “to engage with the largest corporate GHG emitters on the planet,” Ms. Labelle says.
So far, 167 companies have been selected for engagement (making up more than US$10 trillion in market capitalization), and 111 have signed net-zero emission commitments. In 2018, the number of signatories was only five.
“That jump shows that there is value in collaborative shareholder engagement efforts,” Ms. Labelle says. “Some observers are also calling for further standardization in engagement processes. That can encourage a systematic process in articulating expectations of companies, clarity in the escalation options when a company is not responsive, and robustness in reporting engagement progress and outcomes.”
A Canadian equivalent, Climate Engagement Canada, launched in 2021. Desjardins is participating in the effort (now in its set-up phase), which will enable Canadian investors to coalesce in their engagement efforts with Canada’s largest corporate emitters.
Engagement has had a strong focus on corporate disclosure of ESG-related information over the past few years. This is because many companies were not reporting any or enough data points on their ESG performance. That might include diversity on their board of directors, or their annual greenhouse-gas emissions. Such data can give investors a clear view on where these companies stand and whether their treatment of ESG issues is satisfactory.
However, data is a means to an end. The ultimate objective of investors is to have companies commit and deliver on their commitments for environmental and social outcomes that benefit society.
“For example, in the case of climate change, investors will expect companies to have a plan to curb their GHG emissions. But they will increasingly scrutinize the content of this plan to ensure it has been thought through and contains what it take to curb emissions sufficiently and quickly enough,” says Ms. Labelle.
“Data is a necessary cornerstone on which to formulate outcomes-oriented expectations of companies. We will want to see results – not just data, not just commitments – but results.”
Advertising feature produced by Globe Content Studio with Desjardins. The Globe’s editorial department was not involved.