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A Step-by-Step Guide to Investment Stewardship and Engagement Tracking

Optimising your engagement process requires spending time and resources on both workflow and system capabilities. Follow this guide for insights on how to operationalize the process around recording, monitoring and reporting. And who knows, you might just end up avoiding suboptimal use of resources and improving your stewardship overall!

Step 1. Objectives and Strategy:

Start by establishing the baseline for your organisation’s investment stewardship approach. That is, what’s your profile, who are your clients, how do you optimise your influence, and so forth. Nothing you haven’t heard before really, except for the often overlooked area of stewardship and engagement data management, which is what this blog is about.

Oftentimes, stewardship responsibilities can be categorised into two buckets: one with the investment team in charge (with operational support), and one with a split mandate between the investment team and an ESG/stewardship team.

Data management requires its own set of goals and expectations. In active ownership, at a minimum, ESG teams shouldn’t have to administer and police things like activity recording, notes, and progress monitoring. However, the reality is that many investors do struggle to systematically record and manage this data, which, in turn, can hurt the quality of their stewardship and related disclosures.

To assess if your system capabilities are adequate or not, preferably you evaluate your current setup and perform a benchmark of available alternatives. Here’s a stewardship system evaluation template you might find useful for comparison.

Step 2. Prioritisation:

Prioritising stewardship efforts normally reflect a combination of a bottom-up and top-down approach to monitoring and more dedicated, objectives-based, engagement dialogues. While the former is often guided by unique investee circumstances, engagements can be initiated either on the back of such findings or because of specific engagement criteria.

Here are some examples of typical engagement prioritisation criteria:

  • Focus topics based on client and beneficiary interests,

  • largest holdings,

  • credit quality/duration of FI holdings (e.g. less balance sheet flexibility for negative ESG impacts, or exposure to ESG factors over certain timeframes),

  • worst performers based on specific ESG data (e.g. breaches of international norms, poor ESG risk rating scores),

  • value chain engagements, often through collaborative initiatives focused on specific topics or industries with significant material/systemic ESG risks/impacts.

Using Esgaia and system integrations, you can decide what information should flow to and from the software for enhanced information access, for example by importing relevant ESG research.

Step 3. Preparation:

Depending on the purpose of the dialogue, the nature and scope of preparation will look different. As part of this process, investors generally:

  • collect background information from relevant sources such as corporate disclosures, investment & ESG research providers, external benchmarks, media, and NGOs,

  • establish best practices by performing peer analysis and considering global/industry-specific frameworks, and

  • determine the asks and objectives, i.e. what are you looking for and how will you monitor progress, including suggested actions and timeframes.

With Esgaia, you can add relevant information on entity-, engagement and activity level, such as notes and files, with flexible progress frameworks available in engagement profiles.

Step 4. Dialogue & interactions:

To further build trust and enhance the probability of success, investors consider things like; intentions and expectations; entry points; timing; regional considerations; and timely follow-ups.

From a data management perspective, to ensure systematic stewardship tracking, there are certain information you might want to consider capturing, such as:

  • for interactions: activity and counterparty types, purpose, participants, topics discussed, and notes,

  • in engagements: ESG category and topics, SDGs, PAIs, objective(s), performed activities, and next steps.

Esgaia provides an intuitive user experience where you can e.g. establish custom fields, and define engagement and activity templates for more complete data capture. By linking up Egaia with internal and third-party systems you are able to share active ownership data more effectively across teams, for example by importing emails with our Outlook Add-in.

Step 5. Progress monitoring

For stewardship to become more effective and adequately meet stakeholder (reporting) expectations, investors need to better assess the status and progress of dialogues over time.

This is where you monitor progress against your asks and objectives, capture dialogue sentiment, and list the next steps.

Via Esgaia, users can structure progress frameworks in alignment with their strategy by defining specific milestones and or objectives. And, you are able to set deadlines and follow-ups to ensure timely action and accountability.

Step 6. Escalation (if needed)

When progress is insufficient, investors should escalate dialogues accordingly. There is no one size fits all approach here, rather escalation strategies should be specified on a per-fund or strategy basis to account for e.g. different asset classes’ rights and influence.

Several activities can fit into an escalation strategy, such as:

  • sending a letter to the CEO or the Board with expectations and escalation implications,

  • utilising the AGM and its different routes (e.g. asking questions, filing or supporting a shareholder resolution, voting against director re-elections),

  • seeking collaborators to increase influence,

  • reweighting or divesting from holding,

  • using official position statements, blacklisting or litigation.

Using Esgaia, you can choose to label activities as part of an escalation strategy. Where linked to specific engagement profiles, these activities will then show up on a timeline for a complete “audit” trail of interactions.

Step 7. Concluding engagements

There can be many forms of stewardship outcomes. From outcomes relating to investors’ internal work around process, governance and resources, to the results from their outward-facing stewardship efforts.

Regardless of good or bad, be clear about your stewardship outcomes, your stakeholders deserve honest and reliable claims about your ambitions, and the correlation between activities and results.

In Esgaia, you can record progress over time, as well as dialogue results, entity outcomes, and investment implications for concluded engagements.

Step 8. Reporting

Evolving reporting regimes require investors to outline their stewardship strategy, demonstrate their efforts, and evidence the outcomes, using both statistics, text-based disclosures and detailed case studies.

Good data management supports higher-quality disclosures, which can help enhance your market influence. Conversely, if you don’t take data management seriously, reporting can become a real challenge with often fragmented unstructured information, and incomplete records of interactions.

Via Esgaia, all data is automated for smooth entity and product-level analytics and disclosures. It can be accessed and displayed on the platform, via exports, PDF case studies, or using website plugins with live disclosures.

Step 9. What are you waiting for? Time to get going!

It’s time to bring your stewardship data management to the next level!

Contact us to learn more about our digital workspace for asset stewardship, designed to seamlessly bring investment, ESG and reporting teams together!

For additional insights, check out this blog on 4 Stages of Engagement Tracking: From Novice to Expert, where we map the maturity of engagement strategies to common system capabilities across four different levels.

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