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Research and White Paper

The case for engagement

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When challenged about environmental, social and corporate governance (ESG) aspects of investment choices, investors typically cite the need to engage with companies to effect improvements over time, ostensibly because changes in ESG-related issues cannot happen overnight due to companies' needs to respond both to their business environments and stakeholder expectations.

Critics of a more gradual, collaborative approach argue that it is impossible to 'engage' our way out of global challenges like climate change and that time spent manoeuvring for influence is essentially wasted. They favour taking a harder line in pushing for change, backed by the threat of divestment. Support for this approach can be vocal, particularly from those frustrated by the perceived lack of meaningful action in tackling increasingly tangible global problems.

To understand the case for engagement, it is important to recognise that it is not a tool for crisis management or deploying 'quick fixes'. Complex, systemic problems rarely have simple solutions, but demand deeper understanding and informed interventions. While engagement should always start with constructive discussion, the process may need to be reinforced through firmer measures, such as through voting, public statements or supporting or filing shareholder proposals. While divestment is sometimes necessary, it could be seen as a de facto admission that no improvement is possible. Worse, on selling out, the new i

CATEGORIES: Governance ASSET CLASSES Asset Classes: Equity