Active engagement is important to 80% of investors

What is active engagement?

Active engagement is an investment approach that uses constructive dialogue to achieve significant improvements in the long-term sustainability of investee companies. This is done through constructive dialogue and voting to effect positive change on environmental, social and governance (ESG) issues at shareholder meetings. Engagement usually begins informally by talking with the company’s sustainability and investor relations departments. It then graduates to more formal talks with top management to obtain binding commitments on meaningful change.

Victor Verberk, CIO of Fixed Income and Sustainability at Robeco, says: “Engagement, climate and biodiversity will be central to investment processes between now and your retirement, as well as long thereafter.” Active ownership is the favoured approach to dealing with particularly contentious sectors, such as oil and gas, where voting and engaging to secure decarbonisation commitments have proved particularly effective.

Commitment to active ownership and engagement

Sanlam Investments made the decision to partner with Robeco two years ago because of their pioneering approach to sustainable investing. Explains Chief Executive of Sanlam Investments Nersan Naidoo, “As part of our conscious sustainability and impact-focused agenda, we embrace active ownership and engagement to help bring about the change needed to safeguard and even increase the value of the investments for which we are responsible”.

In Robeco’s white paper on active ownership called Challenge Accepted, research revealed that 28% of respondents intend to become active owners in oil and gas companies in the next two years. When it comes to net-zero emissions, 75% of investors said that this will become the biggest engagement theme over the next two to three years as part of their drive to achieve carbon neutrality in their portfolio by 2050.

Key findings in the active ownership white paper

• Active engagement is now a vital part of investment policies for almost 73% of investors, while 80% said its importance will increase in the next two years.
• 73% of European investors and 61% of global investors say engagement strategies are effective in fostering change in ESG policies at investee companies and they expect their impact to grow in the future. Around 11% thought it was “very effective”, while 25% were neutral.
• 60% of investors say they have a very good understanding of engagement with companies in order to drive change on carbon emissions.
• 66% of investors say they are motivated to use active engagement to ensure that governance standards comply with good practices.
• While investors generally want better data on ESG issues, corporate governance data is currently used by just over half of investors. Lack of data is consistently cited as one of the biggest obstacles to sustainability.

Says Peter van der Werf, Senior Manager of Engagement at Robeco: “Active ownership is a long-term game. You don’t achieve results overnight, but I think asking the right type of questions persistently and driving companies in the right direction will help us to show there can be real-world outcomes.” One of Robeco’s most successful engagements to date has been convincing the Italian energy group, Enel, to fully decarbonise by 2040, bringing forward its previous net-zero carbon emissions target by a decade.

Commenting on one of the most debated topics in ESG investing, namely when to engage and when to divest from companies, Van der Werf said, “For some the debate is crystal clear. They want investors to divest from companies that threaten the future of our planet.” However, he said for asset managers, the picture is more nuanced. “The question is not to divest or to remain invested, but to decide at what point an unsuccessful engagement should result in divestment.”

Find out more by reading the Robeco white paper on active engagement, Challenge Accepted.

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