Driven by both voluntary and statutory initiatives, investors are finding it hard to keep up with disclosure requirements. In turn, reporting is quickly becoming a key resource challenge for investors, both in terms of people and technology. Using Esgaia software, Storebrand is one of the first asset managers in the world to enable live reporting of engagement efforts on both entity and product-level directly via its website. Summary Using Esgaia technology, Storebrand has implemented live engagement disclosures via its website. Its primary objectives have been to; save time and resources in reporting, improve transparency, and enable quicker information access to clients. Storebrand can now easily create and manage their live disclosures directly via Esgaia’s software, including which funds, modules, and descriptions to apply. With a simple iframe code, they can add additional “embeds” to their website at any time. - In this short case study, we outline the background, solution and implementation of this product. Client Storebrand Asset Management is a leading player in the Nordic market and a pioneer in the field of sustainable investments. We have been at the forefront of sustainable investing since the mid-1990s and are one of the founding signatories of the PRI. Storebrand AM is a wholly-owned subsidiary of Storebrand ASA, which is listed on the Oslo Stock Exchange. The Storebrand Group dates back to 1767, and currently provides a wide selection of strategies under the brands of Storebrand, SKAGEN, Delphi, Storebrand Fonder, and Cubera, with a total AuM exceeding EUR 100 bn. Challenge Today, investors in most jurisdictions are expected to report on their engagement and voting activities to stakeholders. This information should be easy to access and understand by different user groups, and be provided on a regular basis. The regularity of such reporting is often annually, but this does not account for the increasing amount of other (ad hoc) requests from internal and external stakeholders. With engagement disclosures being both quantitative and narrative-based, preparing and presenting data in different formats can therefore easily devour resources. As such, reporting has become one of the primary use cases of Esgaia’s software. Solution One of our commitments to clients is to help innovate to raise the overall technological level in the industry. This here is one such example, where the ambition has been to help ease investors’ reporting burden and demonstration of stewardship efforts. This new web-based reporting format allows investors to further automate their reporting strategy by providing live engagement data through embeds/plugins on websites for both entity and product/mandate level disclosures. At this point, it is particularly suitable for the more quantitative engagement insights, such as the number of engaged companies, engagements, activities, ESG category and topics. It is not intended to replace annual stewardship reports, but to enhance the overall reporting strategy and capacity. Investor implementation With Storebrand being the first client using live disclosures, Esgaia’s tech team collaborated with Stewardship professionals at their side to implement certain product enhancements. Via Esgaia, Storebrand easily creates and manages their “live disclosures”, including which funds, modules, and descriptions to apply. By accessing a simple iframe code consisting of a couple of HTML-rows, Storebrand then smoothly integrated this data onto its own website. Results Together with Storebrand we strongly believe this provides an important building block to help save time and resources in reporting, improve transparency, and enable quicker information access to clients. While the verdict is still out on measuring the longer-term outcomes of these objectives, one thing is clear: technology will only help to improve investors’ business and operational performance, this time by empowering their engagement management and reporting strategy. Access Storebrand’s PR here and live disclosures here. Victoria Lidén, Responsible for active ownership & corporate governance at Storebrand Fonder AB: - “I feel proud that we at Storebrand Fonder now can show our active ownership activities in a very transparent way. Anyone who is curious can at any time access the dashboard on our website and see which sustainability issues we have discussed with the companies in the respective fund, says Victoria Lidén. We will now continue our work with the support from Esgaia to further improve the tool and make more information available about our active ownership".

In this blog, we map the maturity of engagement strategies to common system capabilities across four different levels. We suggest using it as a resource to assess your own setup and to what degree it helps you meet and exceed expectations, now and in the future. Institutional investors are increasingly held to account for the responsible stewardship of clients’ and beneficiaries’ investments. Depending on the cultural, geographical, and organisational context, stewardship approaches will look differently, or should we say, reflect different maturity levels. This doesn’t make it static, as we all know it’s a journey, for which ambition and accountability go hand in hand. The engagement management maturity model shown below is designed as a roadmap to help investors plan for their future state and improved “operational alpha”. Accounting for the maturity of engagement processes (i.e. how structured and formalised these are) and common system capabilities we hear about in the market, whether or not you identify with any of the general stages, it hopefully provides some relevant guidance and food for thought. * For extra context on engagement strategies and a typology of engagers, see the thematic research study Engagement: Unlocking the black box of value creation The Novice: A starting point Here is where most organizations start their stewardship journeys: Often, there’s no or very limited information on strategy, team efforts are primarily driven by the investment department, possibly with RI coordinator support, the engagement process primarily reflects fact-finding dialogues as part of general investee monitoring, sometimes triggered by controversies, with limited objectives and target-setting, and weak escalation, with no to limited reporting. At this level, aside from evaluating the strategy based on team, stakeholder requirements, and competitive positioning, investors need to think wisely about resources and how they ensure data capture with minimal administrative burden while staying cost-efficient. From a system support perspective, if the investor is small enough with a limited number of engagements and activities, excel might fully suffice, and there might not be a need for something more advanced. However, if your organisation struggles with e.g. complex spreadsheets, version control, and siloed data, then it's time to take action. For more information, read our blog on Excel for Engagement Management: When it's Time to Break Up. Emerging Maturity: Finding ways ahead To be plotted as emerging on the maturity model, your organisation’s approach will likely mirror some of the following criteria: there’s dedicated information in a Responsible Investment policy, a smaller ESG team is in place responsible for strategy and coordination with the investment dept., the engagement process is characterised by both reactive and proactive dialogues, there’s an overlay of engagement objectives to regular meetings, escalation is still weak with no to limited impact on investment decision-making, and reporting is primarily narrative-based. At this stage, there’s an increased focus and attention to stewardship. Driven by market developments, the demonstration of efforts is becoming increasingly important, making solid tracking more urgent. From a system support perspective, investors recognise they need at least baseline functionality to align with peers. With engagement tracking becoming a separate line item on the requirement specification, there is a mandate to thoroughly evaluate current and future capabilities. To ensure quality and complete data trails, investors focus on process buy-in across the organisation, which however can still prove challenging. Serious effort: Positioning for scale These investors have a solid engagement history to build from: the stewardship strategy is outlined in a standalone section of the RI policy, a clear mandate and governance structure is in place, with an ESG team responsible for driving their own dialogues, as well as supporting the investment department with subject matter expertise, engagement process-wise, there’s a thoughtful approach to prioritization, monitoring, and escalation, with more focus on thematic engagements, and reporting displays a mix of narrative-based disclosures supported by limited quantitative information. At this stage, stewardship is becoming a competitive advantage in product- and brand positioning, following with greater expectations both internally and externally. Investors need a thoughtful approach to scaling their stewardship programs and resources, both in terms of personnel, process, and technology. From a system support perspective, the biggest challenges are oversight, control, and scaling. Legacy approaches are increasingly falling short of expectations, followed by more customisation needs. There’s an increased focus on database management, integrations, and fit-for-purpose functionality such as the ability to set objectives and deadlines, track thematic engagements, with powerful analytics and reporting capabilities. Expert practices: Fully integrated Typically, advanced organisations see their stewardship strategy as a differentiator, part of a firm-wide progressive responsible investing agenda: There are dedicated policies for stewardship, covering both engagement and voting, a stewardship team is responsible for the organisation’s strategy and practices, including driving their own dialogues, as well as supporting the investment dept. with subject matter expertise, the engagement process is well-defined, covering prioritization, monitoring, and product-specific escalation, with a focus on systemic issues and the broader sphere of influence, and reporting reflects both narrative-based and quantitative disclosures, supported by in-depth case studies. At this stage, your organisation is allocating resources across the board. While having a solid process on paper, maintaining quality and improving overall coordination is still important. From a system support perspective, The biggest challenges are often organisational in terms of competing internal priorities, and operationalising workflows. To align the strategy with industry best practices, purpose-built solutions in combination with system integrations are preferred to fulfill use cases. As part of your analysis of whether to build or buy, please read our blog on Esgaia vs In-house Development: A Time and Cost Analysis. Empower your team Purpose-built engagement tracking technology is playing an increasingly important role for investors. It helps improve quality and empower smooth workflows so that your teams can focus their time and effort on what matters. To offer some self-help, your organisation should be asking itself questions such as: Have we set aside a budget for this? What functionality needs and requirements do we have? How do we ensure to keep up with emerging industry best practices? What tools can help us take the next step, or augment existing capabilities? Today, digital is a top priority for asset managers to future-proof data and process management. Engagement tracking is one area in which investors can position themselves for both improved engagement effectiveness, as well as operational alpha. Are you ready to take the next steps in engagement management? Contact Esgaia to discuss how we can help you overcome challenges and address inefficiencies. //The Esgaia team

This blog looks at the influence of institutional investors, and the role of collaboration, partly by reviewing emerging literature on social network analysis as a theory to analyse investor influence on companies. The role of institutional investors in public equity markets has increased significantly. A report for the OECD on the matter shows how they have become the single largest category of investors in public equity markets, with three times the amount invested by public sector owners and six times that of strategic individuals. According to the report (published in 2019), institutional investors held 41% of global market capitalisation, and have become significant owners in individual companies in advanced economies. For example, in the United States, the average combined ownership held by a company’s ten largest institutional investors was 43%. More, in terms of foreign ownership, this has increased significantly over several decades to reach an average of at least 30% of public equity investments in domestic markets. With ownership comes responsibility Investors of all types have grown increasingly informed and engaged in their portfolio companies. Guided by their fiduciary duty, they are expected to act as universal owners focused on protecting and developing the long-term value of diversified portfolios. Using voice and ownership rights is central to such stewardship efforts, for which collaboration (under the right circumstances) can provide a powerful mechanism to pool knowledge, resources, and information. However, while investor-corporate engagement looks promising on paper, research tells us it needs to become more effective to truly help address the issues and opportunities facing companies and the societies in which they operate. Social network analysis Speaking of effectiveness, from a theoretical perspective, institutional investors’ influence can be considered in the context of social network analysis (SNA). Building on the widely-accepted principle that the position within a network creates different status or reputation, this theory has been used to analyse stakeholder influence on companies and in sustainability transitions. Researchers Bajo, Croci and Marinelli (2020) found the level of active institutional investor centrality to have a strong and positive effect on firm value. To establish the centrality of each actor, the authors overlapped block-holding positions with other institutional owners to assess the number of connections, effectively creating a degree of connectedness. The position of each institutional block holder then served as a proxy for its relative influence, prominence and prestige in the entire network. Using similar network theory to uncover the structures of ownership in the fossil fuel industry, Dordi et al (2022), identified 918 distinct (direct and indirect) shareholders with greater than 1% ownership in at least one of the fossil fuel firms in their sample (the Carbon Underground 200). Ranking the most prevalent shareholders based on emissions potential and network centrality, nine of the top twenty shareholders were asset managers (investment advisors in the report). Furthermore, this investor type generally followed with a higher degree score in comparison to the other types, indicating that they, through their numerous holdings, are more central to the network. The main finding was therefore the significant influence of these shareholders on the net zero transition, with the top ten “owning” 49.5% of the emissions potential. The inference from these studies is that while size and scale matter, investors should consider the points of intervention suitable for them by considering aspects such as investor type, geographical and sectoral exposures, location, and expertise. Through combining resources, collaboration can then help investors to reach beyond the amount of “paper” they individually own, increasing both their power and legitimacy. 1+1=3 The market still has lengths to go to truly democratise active ownership. While there is a tradition of equality of treatment for shareholders and strong minority rights, differential treatment is still persistent. In part, this is due to issues in the market infrastructure and intermediary chain, which for companies, is resulting in agency issues, and partial information problems. The latter is something Fisch and Sepe (2020) have found more costly. Based on the economics of information, the authors show how collaboration can work as an antidote, effectively helping to reduce both of these issues by promoting the production and aggregation of information from insiders and shareholders, adding value that is otherwise lost under unilateral decision-making. Fundamentally, enhanced collaboration helps spread resources and costs associated with research, tasks, and responsibilities. It reduces duplication, streamlines information dissemination, and democratises engagement access for smaller, resource-constrained investors. However, there are challenges to it as well, such as how to manage coordination costs, competitive aspects, and individual preferences, while staying clear of regulatory hurdles around acting in concert rules. Constructive activism has changed in nature Today, it’s not just an investment strategy, but a behaviour of mainstream investors. Collaboration offers a particularly powerful tool to help align the interests of investors, companies, and their stakeholders. In turn, empowering investors to stay true to their commitments through the Principles for Responsible Investing: to be active owners and work together in the furthering of the principles. Author: ​​Rickard Nilsson, Director Strategy & Growth at Esgaia. With years of experience in the field of responsible investing, Rickard focuses on industry- and regulatory developments, market and academic research, and more. He has particular experience in investment stewardship and how engagement can help advance sustainability practices.

By centralizing engagement and proxy voting data in one platform, investors will be able to strengthen their ESG data capabilities to better manage and meet their ESG goals. Stockholm (October 27, 2022) - Esgaia, a technology company offering investors specialised ESG engagement tracking software, today announced it has teamed up with Glass Lewis, a leading independent provider of global governance and engagement support services, to provide a customized version of Esgaia’s technology to its institutional investors that want to digitalise their engagement workflow to improve activity recording, performance monitoring, and stakeholder reporting. The customized platform, which will soon be available through Glass Lewis, will provide a seamless integration of proxy voting and stewardship engagement data, and will allow investors, including Glass Lewis’ 1,300+ clients who collectively manage more than $40 trillion in assets, to optimize their engagement processes, and report on the progress and efficacy of their active ownership. “We see that many investors’ systems for engagement management are inefficient and not fit-for-purpose, which can become a hindrance to successful engagements,” said Anton Ljung, CEO at Esgaia. “We are convinced that purpose-built technology will play an increasingly important role in investors’ active ownership programs. Together with Glass Lewis, we will be able to propel the software usage and derived benefits for a greater number of investors, empowering them to become more responsible stewards of assets”. The strategic partnership enables Glass Lewis clients to: Centralize their active ownership work in Glass Lewis’ environment Holistically align proxy voting and engagement records Create smoother workflows for stewardship and investment teams Break down operational and data silos using system integrations “We found that too many investors were struggling with spreadsheets to gather and organize their engagement data,” said Dan Concannon, Chief Commercial Officer at Glass Lewis. “This platform not only allows engagement information to be better organized and accessible by internal teams, but it also surfaces insights to improve stewardship goal-setting and decision-making. As part of the Glass Lewis suite of Active Ownership solutions, the platform serves as a critical component to ensure investor stewardship efforts yield results”. About Esgaia: Esgaia is a technology company providing an independent purpose-built engagement management software to institutional investors globally. The platform helps investors save time and improve quality by centralizing engagement management in a cloud-based environment. About Glass Lewis: Founded in 2003, Glass Lewis is a trusted ally of more than 1,300 investors globally who use the firm’s Proxy Paper research, industry-leading Viewpoint proxy vote management solution, and now engagement management platform, to help drive value across all their governance activities.

Rickard Nilsson, Director of Strategy and Growth at Esgaia, highlights recent academic insights into the effectiveness of ESG engagement. This blog is a short version of the original article, as published via ESG Investor on the 7th of October. The pillars of risk, return, and impact As part of investors’ stewardship practices, engagement can, if well-executed, lead to positive results across the axes of risk, return and impact. Engagement to reduce risks: In a recent study by Hoepner et al (2022), the authors analysed whether ESG engagements result in subsequent reductions in downside risk at portfolio firms. Measured using the lower partial moment of the return distribution and value at risk, they found significant subsequent reductions for successful engagements, demonstrating that engagement can indeed benefit shareholders by reducing firms’ downside risks. Engagement to increase returns: Several studies confirm this hypothesis for successfully engaged companies. Dimson, Karakas & Li (2015), Barko, Cremers & Renneboog (2021), and Bauer, Terwall & Tissen (2022) all found positive market reactions to ESG engagements in their samples. While the former study found improvements in operating performance, profitability, efficiency, shareholding, and governance, the second study found no changes to accounting performance, but sales growth increased significantly. Perhaps more importantly, in that study, the authors found particularly strong excess returns when targeting firms in the ex-ante lowest ESG quartile. Furthermore, in the third study, we learn of how successful material engagements significantly outperform their peers over the next 14 months, and of the stronger association with improvements in profitability, sales, and cost ratios, than in comparison to immaterial engagements. They also found a much higher success rate for engagements with multiple contacts. The inference from these findings is that purposeful engagement with responsible activity levels can have a positive impact on returns and operating performance, especially so when targeting laggards and financially material issues. Engagement to create real-world impact: With theories about investor impact abound, the report titled ‘The Investor’s Guide to Impact’ by Florian Heeb and Julian Kölbel (2021) is a good resource. The authors note that investors should consider the level of empiricism behind a given mechanism for achieving investor impact as they gauge confidence in their own potential impact. For example, shareholder engagement is assigned evidence level B (ranging from A-D), corresponding to empirical evidence, while ESG integration is assigned level C, corresponding to a model-based prediction, for which the price effect of market signals in theory could incentivise improvements. Collaboration as an enabler The evidence here is clear: collaboration should play a central role in investors’ stewardship practices. To further support such efforts will require addressing both regulatory hurdles and strengthening the mechanisms that pool investor resources. Both Dimson, Karakaş & Li (2021) and Ceccarelli et al (2022) show that leadership is decisive in collaborative engagements. While the former demonstrate investor influence as crucial through e.g. following established processes, and being more numerous with a larger AuM represented, the latter show that despite owning only 2.2% of the average firm, ‘Leaders’ alone explained the positive relationship between institutional ownership and firms’ environmental and social performance. Even if this evidence was not strong enough to demonstrate a causal effect, the authors did note that while the majority of institutional investors advertise a commitment to sustainability, only a minority positively drive corporate sustainability. Mind the gap in engagement practice The effectiveness of ESG engagements needs to be put in question. In the aforementioned study on material ESG engagements, the success rate was just 20%, and in a study by Krueger, Sautner and Starks (2019), only one in four respondents reported successful climate engagements. Furthermore, Gianfrate, Kievid and Nunnari (2021) found that engagement claims yielded no meaningful reduction of investees’ carbon footprint, except for the most polluting companies, for which the reduction however had a limited magnitude. The authors, therefore, concluded that responsible investors can help the decarbonisation of investees, and increase the level of impact, if their active ownership becomes more effective. Increasing engagement effectiveness Unless we expect regulators to step up and be solely responsible for reining in cost-externalising business decisions, we need investor stewardship and engagement to become more effective. Responsible stewardship is about quality, not quantity. It is about proper resourcing in people, processes, and systems, not just ticking a box to satisfy stakeholders. It will certainly require more thoughtful strategies, greater transparency, and frankly, a healthy dose of self-reflection. Thus, if you haven’t already, you may need to ask yourself questions such as: Are our stewardship priorities regularly updated? What are the expectations on the team? How satisfactory is coordination and involvement of investment teams? Has there been adequate training? How can we collaborate more? What’s our approach to public policy advocacy? Do we have proper escalation processes in place if progress is lacking? In concluding, I’ll stay true to this article’s purpose by offering up one final (required) reading, a summary of academic research outlining success factors for corporate engagement. Author: ​​Rickard Nilsson, Spokesperson and Director Strategy & Growth at Esgaia. With years of experience in the field of responsible investing, Rickard focuses on industry- and regulatory developments, market and academic research, and more. He has particular experience in investment stewardship and how engagement can help advance sustainability practices.

On 7 March 2018, the European Commission released its well-known Sustainable Finance Action Plan (SFAP). Aiming to promote sustainable investment across the 27-nation bloc, this is a major policy objective by the European Union. Two of the most important initiatives in this action plan are the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy. In this blog post, we address the role of active ownership in these regulations, and how investors can meet and exceed the requirements. Active ownership is an important strategy for investors in furthering their asset stewardship. In the EU, from a legislative perspective, the Shareholder Rights Directive (SRD II) regulates and establishes investors’ requirements here. Currently, it requires institutional investors and asset managers to disclose, on a comply or explain basis, their engagement policy. SFDR Since 10 March 2021, funds available for sale in the EU have been classified as Article 6, 8, or 9, depending on their sustainability strategy. In the second quarter of 2022, assets in Article 8 and Article 9 funds surpassed 50% market share. However, with less than half of surveyed Article 8 and Article 9 funds having reported their PAI consideration and sustainable investment exposure, the data is, at the moment, patchy at best. Active ownership requirements Generally, investors engage with companies on different criteria of the SFDR, such as: sustainability risks (financial materiality perspective), sustainability factors (stakeholder impact perspective - PAIs), and the ‘Do no significant harm’ (DNSH) objective. The delegated regulation specifies the exact content, methodology and presentation of the information to be disclosed. On entity level, SRD II requirements apply with associated obligations to disclose an engagement policy and annual updates on its implementation, and how material votes were cast. For entity and product-level PAI statements, and in periodic reporting, engagement policies should be included, with activities applicable as ‘Actions taken’ to address specific PAIs. Where there is no reduction of the PAIs over more than one reference period, it should be explained how those policies will be adapted, including targets and actions planned. TAXONOMY There’s been no shortage of press lately around the EU Taxonomy. Following the parliament’s decision to include natural gas and nuclear, effectively labelling them as environmentally sustainable economic activities through the taxonomy, in the eyes of many, it has lost its credibility and scientific rigor. Be that as it may, many still believe the taxonomy will help to scale up sustainable investments in Europe by reallocating capital into the right type of assets, projects, and companies while combating greenwashing. Active ownership requirements There are no such requirements in the Taxonomy’s objective, however, investors still believe that engagement is an important, if not critical tool, to increase alignment amongst portfolio holdings. Here are a few ideas you might want to consider: create a set of taxonomy-related ratios as a basis for engagement, such as a company’s aligned vs eligible activities (proxy for transition willingness), engage with investees to increase alignment of economic activities, address indications of non-compliance or risks of breaching minimum safeguards and do no significant harm criteria. reference the taxonomy to non-EU-NFRD firms, requesting disclosure alignment for peer analysis purposes. Exceeding expectations With evolving stewardship expectations globally, investors are certainly encouraged to move beyond minimum regulatory requirements to show leadership and best practice. A good place to start would be to consider the UK stewardship code, which tends to influence investor practices globally, as well as regional hard and soft law initiatives. See below for a few recommendations. While it’s nothing groundbreaking, they do represent a direction of travel aligned with the perspectives of the PRI and UK’s FRC: Consider your sphere of influence, meaning ensure a thoughtful approach to engagement also with non-issuer stakeholders, such as regulators. Increase transparency, meaning communicate how your stewardship strategy is implemented, governed, resourced, and incentivised. Think bigger, meaning use your investment and stewardship powers to address system-level issues. Join forces, meaning collaborate more to increase influence and legitimacy. How Esgaia can support your strategy Esgaia’s software can help you implement and enforce a solid approach to engagement management across your teams. For example, to support actions taken on specific PAIs, you can tie these to engagements and establish related objectives for progress monitoring. And if there is little to no progress over a reference period, you could choose to highlight activities as part of an escalation process using a custom field (available on company, engagement, and activity level). All engagement information then trickles through to an analytics tab to support your entity and product-level disclosures. //The Esgaia team

There are several key areas that will help position investors for success over the years to come. Digitalisation is one example, which has the potential to penetrate every aspect of the asset management industry and value chain. In the evolving tech and data ecosystem, investors therefore need to ask themselves whether they are builders or buyers. In this blog, we set out to answer this question from an engagement management perspective, providing insights into the process and economics behind this choice, modeled against Esgaia’s own journey. Are we a builder? For certain investors, in-house development will be a valid option when assessing alternatives. In short, the benefits are ownership and control, but at the risk of an often very costly and time-consuming endeavor. For a more detailed analysis, let’s consider this in the context of a software development life cycle framework (SDLC). SDLC reflects a process and plan of how to develop, maintain, enhance or replace specific software. While there are different models, the steps involved can typically be summarised as follows: Stage 1: Planning and requirement analysis This analysis is used to plan the basic project approach and to assess feasibility from an economic, technical, and operational standpoint. I.e. what would be required to implement the project successfully and with minimum risks. Stage 2: Defining requirements The next step involves defining the product requirements. This is structured as a document consisting of all the requirements, more formally known as an SRS (Software Requirement Specification) - for your benefit, we have developed a generic checklist that you might find useful here. Stage 3, 4 & 5: Product design and architecture, production and testing Based on the SRS, design approach(es) for the product architecture is proposed to and agreed on with stakeholders, accounting for e.g. product robustness, design modularity, budget, and time constraints. Thereafter we enter the development phase where the product is built as per the design specification. While testing is normally a continued effort throughout the SDLC, it is often also a separate step to ensure meeting set quality standards. Stage 6: Maintenance and support Now it’s Go time. If we're talking about commercializing and selling software here, there are all kinds of considerations, otherwise, for in-house use, we can bring it down to maintenance, support, and further enhancements. Let’s talk about time and money Scrolling the web, you’ll find an endless number of sources suggesting average development costs. One company with over 10 years of experience in software development, 250+ engineers and 170+ successful projects suggests the following ballpark figures for mobile and web applications: basic apps are estimated at approx. 500-700 hours, medium complexity at 700-1200 hours, and complex builds at +1200 hours. Without in-depth analysis, using ballpark figures to estimate the cost of building specific software is quite useless, it does however prove a point as we narrow this down to engagement tracking software. Esgaia’s software To date, we estimate having spent close to 4,000 hours through stages 3-6. With an average software developer cost of 100$ / hour (standard benchmark) that means a total development cost of close to 400k $ (excl. storage costs, etc.) Understanding the complexities in software development also means acknowledging the costs associated with the different stages. An often overlooked cost driver is the “running costs” over time - popular software maintenance studies suggest that between 15-25% of the total development budget should be allocated to maintenance and support. For Esgaia, this would in theory equal >60k $ in standard annual maintenance, without accounting for new development and innovation. The following table summarizes the relative costs and resources needed: No need to reinvent the wheel With the rapid expansion of organisations’ overall software capabilities, these projections can look daunting, even with effort reductions due to synergies with already existing systems. Luckily, there are instances where modernising your IT architecture doesn’t require growing your team or paying for outside help. Today, you can quickly implement advanced external SaaS and DaaS capabilities to help improve a multitude of business processes and use cases. When you dissect the end-to-end activities associated with developing an engagement tracking software, it becomes evident that for most, there’s no need to reinvent the wheel here. If you struggle with engagement management and keeping up with best practices, consider something purpose-built. At Esgaia, we are committed to continually developing and supporting the software to meet the evolving needs of our clients. Investors save both costs and valuable time, freeing up resources to focus on what really matters, driving purposeful engagement that leads to sustainable outcomes. To learn more about Esgaia, please contact us.

In responsible investing there is a strong push toward more outcomes-focused approaches - investors are being asked how they use their investment and stewardship powers to drive sustainability outcomes at companies and in the real world. In this blog post, we look at growing stakeholder expectations, the regulatory setting and provide guidance for the demonstration of achievements. Backdrop “Stewardship has the greatest meaning when it directly relates to practical outcomes, and not just a policy framework” - ICGN Global Stewardship Principles. Reflecting a natural progression of the industry, the truth is however that we’re still in quite a nascent state of assessing environmental and social impacts. While there are significant regional differences, the current environment is much characterised by a lack of standardisation leading to subjective interpretations and the pushing of boundaries. This failure to adequately self-regulate has alerted the attention of regulators who have implemented a plethora of sustainable finance policies in recent years, while getting serious about greenwashing. But to implement robust, transparent, and comparable evaluation processes requires more institutional innovation and the standardising of rules and norms (read: CSRD, SEC mandatory climate disclosures, ISSB, etc.). Regulatory setting ESG disclosures provide an important mechanism for benchmarking, accountability, and behavior. As explained by George Serafeim in a working paper, this focus might be desirable to mitigate ‘cheap talk’ by companies, as a company would need to show real effects (e.g., reductions in carbon emissions, improvements in lost time injury rates) instead of disclosing the adoption of a policy or initiative that might generate no real effects. Conceptually, this looks similar for both investors and investees, however their respective impacts are different, so it makes sense to separate the two. Zooming in on Europe, we find that the EU sustainable finance rules are poorly designed in regards to such theories of attribution. Per the 2DII analysis ‘Fighting greenwashing… what do we really need?’, while the SFDR and the Taxonomy Regulation require that certain investments demonstrate a positive impact of the investee company (e.g. to be marketed as Article 9), there is no requirement to demonstrate the positive environmental impact of the investor (or the purchase of the financial product). //For information on active ownership expectations in the SFDR (including the principal adverse impacts) and the EU Taxonomy, please read this blog.// Here’s a quick recap of the well-known concept between investor and company impact: Investor impact can be defined as the change that the investor causes in the activities of real-economy actors (most often the investee company) Company impact on the other hand is the change that the company has caused in the real economy. In other words, investor impact can be referred to as the change that investor activity achieves in company impact, and company impact as the change that a company’s activities achieve in a social or environmental parameter. General rules There are general finance rules (MIFID II, CBDF Regulation and Prospectus Regulation) that also apply to environmental impact claims in the finance sector, although these rules are perceived as too high-level to provide effective governance of such claims. Then there’s also the UCPD Guidance and MDEC Principles, the latter a soft law initiative representing recommendations from a multi-stakeholder dialogue on environmental claims (MDEC) in relation to how the general UCPD provisions apply in the context of environmental claims. Even so, remember that while EU-level regulation seeks to provide a minimum level of harmonisation, differences between the national rulebooks should be considered. Guiding thoughts In a separate blog, we highlighted disclosure requirements from both ICGN and the UK Stewardship code. As with the PRIs guidance, due weight should be placed on quality and evidence-based engagement focusing on clear outcomes. With this and the regulatory setting in mind, as impacts may not be immediately quantifiable, or comparable, it’s extra important to let honesty and realism guide your outcomes-focused disclosures. You can still provide qualitative and quantitative reporting on the progress of your engagement efforts, including making use of longer and shorter-form narratives, and case studies. For the latter, - unless anonymising - best practice would have you corroborate narratives with the targeted entity for verification of the engagement journey and outcomes, which will increase your credibility, even if additionality is hard to claim. Furthermore, we suggest you take a look at the aforementioned 2DII analysis here as well, which provides suggestions for the development of guidance for responsible environmental impact claims in the finance sector. It covers aspects such as reality-based claims and substantiating those, providing transparency on additionality, and the limits of products. Lastly, Esgaia’s engagement management software can act as an enabler here. Importantly, it helps ensure complete data trails of interactions, and offers flexible progress monitoring through e.g. objectives and milestones. In turn, all inputs, including any linked SDGs, PAIs, and engagement outcomes trickle through to a statistics tab to support stakeholder reporting across entity, product and engagement level. //The Esgaia Team

The Excel jungle, a place where millions of people globally on a daily basis perform a multitude of tasks to run their businesses, and sometimes get lost along the way. Building on its ‘no-code’ legacy, we have seen tremendous growth in SaaS solutions helping to develop new ways of doing business across industries, case in point, Esgaia's stewardship system. In this blog we look at some of the key benefits and challenges of using spreadsheets for engagement tracking, which should help investors better assess the adequacy of their current capabilities. Advantages of using spreadsheets Low-cost: Already used across most organisations, spreadsheets offer a cost-efficient solution for investors with small budgets and limited engagement activity. Ease of use: Spreadsheets offer a platform where non-technical users can record, manage, and derive insights from data using zero code. Flexibility: Spreadsheets are inherently flexible in terms of format and structure. You can use text, numbers, links, formulas, and graphs to record and monitor engagements, and as input to stakeholder reporting. Versatility: Excel wizards can do a lot with spreadsheets. Providing it does not become too complex, or you become overly reliant on such skills, you can quickly expand the scope to fulfill evolving needs across the organisation. Do we need to say more? I don’t think so. We all agree on the phenomenal success of spreadsheets, and how it’s universally loved across industries and companies of all sizes. Challenges of using spreadsheets Version control: Good luck we say! - did someone work in a separate file instead of using the online version? Were modifications not agreed beforehand? Has information suddenly gone missing? From what we hear, the story goes on.. Siloed data: When using spreadsheets, you will probably lack some of the system integrations that can help improve engagement workflow and data management. The downside is that you might be faced with fragmented and unstructured data, which in turn risk leading to incomplete records of interactions and a lack of information access. Complexity: While the aforementioned flexibility and versatility have its benefits, spreadsheets for engagement management can become really complex (trust us on this, we’ve seen plenty). Aside from the apparent business continuity risks in terms of know-how and institutional memory here, managing an increasing level of engagement data and activities tends to devour resources. Task management: How do you keep track of when you should be following up, or take the next steps? Perhaps some of your more structured staff would actually put reminders in the calendar, but we doubt this is generally the case. This is a real problem as research shows that corporates perceive investors to e.g. lack quality and continuity in interactions. When It’s Time The larger and more complex your engagement program/efforts become, the less likely it is for spreadsheets to be the answer. When this realisation comes, it will most likely have something to do with the above, growing stakeholder scrutiny, and so forth. Hopefully, the points raised can help you assess if spreadsheets still gets the job done (in a credible manner), or if acquiring a purpose-built solution would make sense. To help further guide your evaluation, we have developed a generic checklist covering primary functionality needs such as: Recording & monitoring, including dialogue information and oversight, both on engagement and activity level Stewardship disclosures across entity, product and engagement level Data & operational requirements covering e.g. information access, user experience, and innovation commitments Please access the file here. If you would like more information and market context on the role of software like ours, have a look at this article via ESG Investor. //The Esgaia Team

Advancing system infrastructure by utilising cloud software offers excellent opportunities to break down operational and data silos for better integrated, more streamlined workflows. In this blog, we dive into Esgaia’s approach to systems integrations, as well as how we foresee this area unfolding over the years to come. The “what” In short, system integration can be described as the process that connects various IT systems and applications used by an enterprise so that they work in a coordinated manner, much like putting a puzzle together. It’s a complex building process that connects functions from varying systems to primarily increase workflow efficiency. The “why” In an era of digital transformation, there is an increasing demand for software solutions that help enterprises to digitalise and operationalise workflows. Spending on building out an advanced IT infrastructure is therefore becoming an important part of business strategies to realise efficiency gains and for scalability, while enabling cost reductions, both in the short- and long-term. To ensure deployed technology doesn’t limit and hamper the ability to respond to evolving market practices, integrations help organisations create a tight coupling between applications. In turn, enterprises can create value add by increasing productivity and avoiding suboptimal use of resources. Implications for responsible investors In our blog post on Using Data and Cloud-based Infrastructure to Advance Investor Practices, we comment on the growth of the ESG vendor market and how there is an increasing focus on digital infrastructure to handle the oftentimes siloed data sources, whether it’s for research & data management, analytical or reporting purposes. Increasing complexity of engagement strategies Managing a growing number of engagement dialogues and underlying datasets can make facilitating the engagement process an arduous task. For example, how do you ensure proper oversight and consistency in practices over time when your team members: have limited time, display different knowledge levels, and log information and interactions in different systems? The simple answer is you don’t. Unless you have a really structured approach and use system integrations for an effortless workflow. The “How” In regards to our software, it functions as a plug-and-play solution, and provides a completely open API for internal and third-party integrations. By automating access to information between systems such as holdings, ESG and voting data, meeting notes, and so forth, the software can be implemented according to your specific needs. See clarifying image below. Esgaia data management chart In conclusion Benefits of engagement process system integrations include: Simplicity: With user access to a purpose-built architecture, the complexities of siloed data and process management are reduced. Information access: Real-time access to data reduces admin and information asymmetry, leading to higher quality inputs and outputs. Efficiency: An integrated approach helps operationalise workstreams so that your team can become more productive and focus on what really matters. Client implications Esgaia becomes a part of investors’ system infrastructure. As such, any integration requests are discussed on a client-by-client basis to establish unique preferences. Please contact us if you want to know more. //The Esgaia Team

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

Implementing more effective business and operating models allows organisations to improve productivity, agility, information access, and transparency. Capital market leaders increasingly recognize the cloud as a destination for industry actors to access advanced software applications to synchronize the enterprise and optimize operations. Advancing system infrastructure by utilising cloud software offers excellent opportunities to break down operational and data silos for better integrated, more streamlined workflows. It can provide a competitive advantage by influencing revenue generation, helping to decrease costs and avoid suboptimal use of resources, as well as providing advanced analytics and quicker insights. Moreover, it helps to reinforce IT security as the main cloud providers have extreme security standards - Esgaia utilises AWS Web Services for application hosting. ESG Data and Infrastructure Economic activities of all sorts have impacts on people and the planet. Responsible investing strives to ensure we understand and can better manage these risks and impacts. Over the years, the development and implementation of ESG strategies have led to major investments by investors in data, people (often in dedicated teams), and technology. Traditionally, the esg research vendor landscape has utilised subscription models to meet investor demands for a differentiated set of research components to support responsible investing strategies. Today, this market consists of several hundred actors across the well-known one-stop-shops to more specialised firms targeting specific niches. In recent years, there’s been an increasing focus on digital infrastructure and related SaaS/DaaS capabilities that connects these oftentimes siloed data sources, focusing on research & data management, analytical and reporting capabilities, and so forth. Underlying Market Growth With global ESG labeled AuM poised for further significant growth in the years ahead, the esg data market is expected to continue its march forward, estimated to have crossed the 1$bn mark in 2021 according to a study by Opimas. This development has fueled considerable M&A activity over the last decade or so by mainstream esg research providers such as Sustainalytics, MSCI, and ISS, while more lately RMS providers and credit agencies have been acquiring firms to expand their own capacity and human capital. Esgaia’s solution Benefitting from the aforementioned market growth, the implementation of software and migration to the cloud in the asset management industry, as well as the general increase in business process automation, Esgaia is, by and large, a result of these trends; Having identified an underserved market segment where we address the overlooked challenge of effective engagement management, we are dedicated to the active ownership space and in particular how we can deploy technology to help optimize the engagement process. To establish a market-relevant offering, we keep a close dialogue with clients to ensure product development is rooted in a thorough understanding of investors’ challenges. Over time, we will follow a “layer cake” strategy of building additional products that empower investors to excel in their strategy and process. This includes the vision of a broader engagement ecosystem that help address investor challenges and reduce market barriers - e.g. around engagement across asset classes, lack of transparency, and collaboration - to in turn help drive sustainable progress and real-world outcomes. Please contact us if you want to know more. //The Esgaia Team