Aligning Your Process According to Engagement Sequences

In discussions with investors we come across different approaches to engagement management, including how an engagement is defined, the approach to activity-recording, and so forth. In this blog post, we focus on how our platform can help you set a solid engagement structure aligned with best practices.

Expectations

There are a lot of guiding principles that help shape market practices, including e.g. those of the PRI and the regional stewardship codes. Providing an example each, starting with the former, the PRI essentially defines active ownership as to influence the activities or behaviour of investee companies. In order to do so, and maintain or enhance the value of assets, the updated UK Stewardship Code demands of signatories to explain how they have developed well-informed and precise objectives for engagement.


As highlighted in our three-part blog series on evolving expectations and market practice, investors now need to be clear about their intentions and scope of practice. Purposeful engagement is more than fact-finding, it should be about setting expectations, understanding and helping companies develop strategies to manage important issues, and if progress is not satisfactory, there is consequence through escalation.


Establishing some market best practices

  • An engagement is not one activity, but a sequence of activities towards specific objectives.

  • Aligned with the definition used by Dimson, Karakas and Li in their well-known Active Ownership study, we view an engagement sequence as a series of interactions dealing with the same issue.

  • Activities follow with different purposes and possible outcomes.

  • They should be viewed across a resource intensity spectrum to assess suitability. More on this and responsible activity levels in this blog.

  • Engagements can have a limited life, or be seen as open-ended.

  • Regardless of the approach, it should involve clear objectives and a framework for measuring progress, as well as accountability if it’s lacking.

  • Engagement takes time

  • Timelines and escalation differ depending on the investor and the issue. For some general and issue-specific guidance, see e.g. the Escalation section in the aforementioned blog post, an example of a PRI progress framework (page 20), or Esgaia's Rickard Nilsson's LinkedIn post on net zero change horizons.


What does this look like in practice then, in terms of engagement management?


Expectations would thus have investors primarily structure their engagement program/strategy according to engagement sequences.

In Esgaia’s engagement tracking system, we follow an approach based on three levels:

  1. Company level. Corresponds to the targeted entity (doesn’t need to be a company). Investors create or upload engagement records tied to specific counterparties.

  2. Engagement level. Corresponds to the number of engagements (or issues/objectives) tied to a specific entity. One engagement record can include several objectives with individual deadlines, however, over time as new issues emerge, we would recommend separate records for better oversight.

  3. Activity level. Corresponds to the number and types of activities undertaken in connection to an engagement. The software enables you to e.g. tie a specific activity (e.g. a meeting) to more than one counterpart and engagement record.


Using a balance of both qualitative and quantitative information, this structure provides a complete digital data trail to ensure best practice reporting and communication of progress over time. It enables you to list the number of engaged companies, engagements, and activities respectively, and provide a breakdown across esg category, topics, activity types, and so forth.


For more information on market expectations around stewardship disclosures, see this blog post, or see our Annual Insights report with aggregated platform statistics for 2021.

//The Esgaia Team