Expectations are increasing on investors to better substantiate engagements, with results and outcomes tracked over time. Given how this complicates tracking and reporting efforts, investors’ system capabilities have come into the limelight, often viewed as falling short of needs with inadequate workflows and data structure. In this blog, we highlight how evolving expectations are changing investor practices, and how modern software like Esgaia can empower your teams to record and monitor engagement progress over time.
Market insights:
Definitions matter. In investment stewardship, what constitutes engagement or stewardship has been evolving. Standards globally now essentially define good engagement as identifying relevant ESG issues, setting expectations, monitoring objectives and results, implementing escalation strategies where necessary, and incorporating findings into investment decision-making. Conversely, interactions that are not seeking change or an improvement in public disclosure should not be classified as engagement or stewardship. As noted by ESMA (The European Securities and Markets Authority) in a recent opinion paper, claims about engagement efforts should be better substantiated and expectations should be made clearer.
Challenges and Goals
Engagements to achieve desired outcomes may take more than a year, it is therefore important to measure progress over time, which is also required in many reporting frameworks. Thus, investors should implement a model where activities and interactions with investees are linked to different initiatives and more detailed objectives, for which progress can be monitored over time.
Take biodiversity and net zero engagements for example, these oftentimes cover multiple objectives and indicators. To track and demonstrate progress against these requires good data management practices; you should be able to provide clarity on what the asks are, performed efforts and company responses, achieved milestones, as well as actual results and potential investment implications.
The challenge with legacy system approaches is that - aside from general issues around the quality, complexity and disparate sources of data - they often lack purpose-built workflows for this, which can lead to poor data structure. The ambition should be to implement capabilities that empower increased productivity rather than hinder it, and where you can trust compliance with evolving stakeholder expectations.
Esgaia’s solution:
Biodiversity example
There are several biodiversity initiatives and frameworks relevant to investors. The platform can accommodate different assessment methodologies, e.g. the Nature Action 100 framework, and The Finance for Biodiversity Pledge’s template for biodiversity engagement. Below we outline how the latter can be implemented and managed in Esgaia.
Template:
The template includes relevant steps to take and information to gather to ensure successful engagement execution. It includes two spreadsheets, covering the following steps:
Step 1: Determine objectives, targets and indicators
Step 2: Plan engagement and track progress
Step 3: Validate results
Data structure:
With Esgaia’s platform, you can centralise stewardship data with information across different levels, including:
Issuer level: Exposures and performance on biodiversity-related indicators,
Engagement dialogue/Initiative level: Data on e.g. relevant biodiversity challenge(s), reason for making contact, and overall goal.
Objective level: Monitoring progress through objectives, milestones, targets, indicators, and expected timelines.
Activities/interactions level: Capturing relevant data such as date of contact, type of contact, engagement lead, issuer representative, and outcome.
Workflow:
1. Implementing template and data structure: Fields from the biodiversity template (as described below) can easily be added to your user templates for engagements and activities.
2. Progress monitoring: Engagement profiles enable you to create records with objectives and milestones, link activities (interactions) over time, set deadlines, and track results and outcomes.
Engagement profile:
The About section could cover information such as About, Reason for making contact, Relevant challenge(s), Materiality, Current state of management.
For each objective and milestone, it’s possible to record e.g. Date of completion, Deadline, Notes, criteria status and attach files. From the template, these options could cover Response / Effect, Quality of response, Timeline, Next steps, Issues to raise in next phases of engagement and Date of next action. In the screenshot below, we’ve added some of these to the notes section to enable free text.
3. Recording interactions: For activities, it’s possible to record e.g. Responsible/Owner, Date of contact, Type of contact, Issuer representative, Stage in engagement, and Outcome.
4. Finishing engagements: When the engagement dialogue has concluded, it’s possible to add information such as Overall result, Outcomes and impacts, Investment implications, and Post-engagement check.
(A comment on measuring impact: As noted by the Finance for Biodiversity Pledge, “for actors seeking to disclose actual effects from biodiversity-related engagement, we currently suggest case-based reporting that is verifiable and reflecting measurable improvements that are directly linked to the targets set and agreed upon by both engaging parties”.)
5. Reporting: Lastly, Esgaia’s analytics features and graph library can provide data on e.g completed engagements, objectives and milestones, Milestone status division and comparison against a previous period. All data can of course be exported, either aggregated or company/engagement-specific.
In summary, the platform you use for engagement tracking should empower increased productivity and compliance with evolving expectations. The Esgaia platform has been purpose-built to help investors record and monitor engagement progress over time, while providing the flexibility needed to cover different investor needs.
//The Esgaia team
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