“Why and When Do Companies Respond to Back Stage Negotiations with Stakeholders? Insights from Shareholder Engagement on Environmental, Social &Governance Issues

Shareholder engagement varies significantly between countries as the relative power of asset owners, asset managers, and companies differs across contexts. To understand these differences, the Laudes Foundation funded this research to unveil the practices used by leading active owners for conducting engagements focusing on environmental, social, and governance (ESG) issues. These findings are based on 93 interviews with professionals involved in ESG shareholder engagement in 12 countries, in addition to an extensive review of the academic and practitioner literature. ■ We differentiate countries based on the direction of influence in the investment chain involving asset owners, asset managers, and companies as the key actors (Part 1 of the report). In company-centric chains of influence, asset owners have little influence on asset managers and companies, while companies are less dependent on institutional investors (i.e., Brazil, China, India, and South Africa). By contrast, in owner-centric chains of influence, asset owners can exert pressure on asset managers and companies, and companies are relatively dependent on institutional investors (i.e., Australia, France, Japan, Netherlands, Singapore, Switzerland, UK, and the US). ■ We detail five distinct steps in the ESG shareholder engagement process that are currently used in each chain of influence (Part 2 of the report). These include: (1) structuring engagement capabilities, (2) setting the engagement goal, (3) interacting with companies, (4) pressuring companies and (5) reporting on ESG engagements. For each of these steps, we highlight the strategic choices available to active owners and show how the characteristics of their country, in terms of the direction of influence in the investment chain, can inform engagement practices. We highlight how these steps differ across company-centric and owner-centric chains of influence. ■ We outline how active owners can leverage these differences for ESG shareholder engagement across the two chains of influence (Part 3 of the report). Specifically, we outline five opportunities for active owners to influence companies in company-centric chains of influence, which often lag behind global sustainability standards and which face limited pressure from institutional investors.