What does engagement mean?
In the investment world, the term #Engagement refers to the dialogue shareholders develop with firms they invest in. For us as a sustainable investor, engagement means raising our voice and conducting an active dialogue with companies to influence them to better consider sustainability issues in their strategies and actions and to improve their impact strategies.
The combination of voting and engagement is often referred to as active ownership.
As shareholders, we have the power to influence corporate strategies and behaviours. Investors can use their voting rights at General Assemblies of shareholders, or even submit new resolutions. This power obviously depends on the size of the shareholder. The rule is: the bigger the shareholder, the stronger the impact (which is a good reason to invest with us and help us have a stronger voice to represent your interests and reach the SDGs!).
Engage to have a real impact on companies
Active shareholders discuss sustainability issues - or in our case the contribution to the Sustainable Development Goals – with the companies they invest in and demand more positive impact. Companies usually welcome the engagement of shareholders to get their insights into potential trends and expectations. The objective of this dialogue for the companies can also be to enhance long-term returns. If you are a milk producer for example and consumers switch increasingly to vegan milk, you might want to shift to dairy-free alternatives before it is too late.
To some extent, the dialogue with their shareholders also gives companies their “license to operate”. And for sustainable investors, preserving long-term returns by investing in companies who are willing to drive the change is obviously important as well.
As such, engagement can be a powerful tool and lead to real changes in a company’s strategy and processes. For example, in 2020 a group of investors engaged with McDonald’s to address deforestation risks in its supply chain. Following the engagement, McDonald’s committed to ensure its supply-chain across its primary commodities would cease to cut down trees by 2030.
How radicant engages with companies
radicant invests in companies that have an overall positive impact on the SDGs. However, a company may have a very positive impact on some SDGs, but a negative impact on some others. Sometimes, we also miss some information to be able to fully assess the company’s impact on nature and society. Or we have concerns with some of the company’s practices, even though their SDG Impact Rating is good. In such cases, we may decide to discuss with the company and start engaging to further drive a positive change, rather than outright excluding them from our investments. Indeed, we regard engagement as a tool to shape corporate behaviours, promote transparency and drive change to achieve the SDGs.
What happens once the dialogue has started? Following a defined timeline and depending on the engagement case, we may decide to sell our position in the company and divest if no progress has been made.
In practice, how can engagement be conducted? Direct dialogue with companies include calls and meetings with companies. Some investors also partner up to gather more forces to engage with companies in a coordinated way. Investor platforms such as FAIRR, the UN PRI or Climate Action 100+ offer asset owners and asset managers the ability to collaborate on engagement activities with investee companies. Through these platforms, investors can find other investors to co-sign letters or join forces to conduct common engagement activities.
For example, radicant signed the Investor Statement of the Access to Medicine Index to influence companies to take action to improve access to medicine, especially in low- and middle-income countries. We also plan to conduct direct dialogue with companies on this topic.
In summary, #Engagement itself is not a sufficient, but it enables investors to become part of the solution to achieve the SDGs. Moreover, it helps influence corporate strategies to provide the sustainable products and services that tomorrow’s world needs.
