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Engagement Process 101: Objectives, Strategy, and Prioritization

Having a well-articulated and credible active ownership strategy is becoming a hygiene factor for many investors and applicable strategies.

Engagement has evolved from primarily a focus on fact-finding and utilization of voting rights to working closely with issuers and other stakeholders to set expectations and help develop strategies to tackle many of the challenging issues currently facing our societies. Today it’s about advancing your fiduciary duty to clients and beneficiaries by ensuring proper governance of assets, balancing both financial as well as social and environmental objectives.

For anyone looking to advance their stewardship strategy, there are some excellent resources and guidance out there which will help you understand value creation mechanisms for investors and companies alike, opportunities and barriers to effective engagement and so forth. However, striving for best practice is to aim at a constantly moving target.

- in this three-part series, we focus on the engagement process and provide views on evolving expectations and market practice for more effective investor stewardship.

Engagement process - summarized in phases:

  1. Objectives and Strategy: Establish, revise and provide transparency on engagement strategy to stakeholders

  2. Prioritization: Observe portfolio companies to identify risks and opportunities to inform selection

  3. Engagement and monitoring: Engage, review of progress and suggested actions

  4. Escalation: Where unsuccessful or insufficient progress, escalate according to strategy

  5. Reporting: Provide insight on activities and value creation to clients, beneficiaries and regulators


Entry no. 1: Engagement Objectives, Strategy, and Prioritization

This article addresses the following areas: (see drop-down sections below)

Getting the foundation right

A strong foundation is essential to enable a successful engagement program. Investors should ensure they have a well-defined management system and plan in place to progress on identified stewardship objectives. Building blocks should include for example how your organisation has governed and resourced stewardship as it regards processes, systems and team structures. On the latter point of responsibilities, we come across a mix of setups reflecting different organizational conditions such as engagement being embedded in the investment process and conducted by portfolio managers and analysts; conducted primarily by a responsible investment or dedicated engagement team; or through a combined approach whereby ESG specialists lead on some activities and work alongside investment professionals to contribute with subject matter expertise.

/ Using the Esgaia platform, investors manage and coordinate engagement activities across different teams /

Growing expectations on stewardship across asset classes

Investor specific prioritization

From reactive to proactive

The materiality continuum

Mitigating systemic risks

Continued focus on collective action

In the next entry, we will focus on engagement initiation, progress evaluation and escalation. Stay tuned!

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