Rickard Nilsson at Esgaia, highlights relevant initiatives (and how they relate to each other) that support financial institutions’ climate actions, and how maximising real world impacts will come from using engagement and active ownership to drive reductions in assets that need to transition. Excerpts and summary from article published in ESG Investor on the 6th of May. Reaching net zero Through the Glasgow Financial Alliance for Net Zero (GFANZ), financial sector net-zero commitments now exceed US$130 trillion. Still however, there is no standardisation on how to evaluate and validate forthcoming targets. Variations in boundaries, time frames and mitigation strategies make it difficult to compare goals, assess progress, and evaluate the credibility of financial institutions efforts to achieve net zero. To drive alignment in portfolios – including achieving economy-wide decarbonization and a just transition – an investment strategy should prioritise engagement and stewardship and direct management (where relevant), particularly for existing assets. However, as we highlight in this article, given the urgency and based on historical evidence, this requires evolving practices from investors to make it more powerful and effective. It’s time to evolve Most investor guidance supports a joint view on the importance of accounting for the transition dynamic of assets, meaning that while we need to incentivise capital allocation to climate solutions and assets already on the right trajectory, maximising real world impacts will come from using active ownership and engagement to drive reductions in assets that need to transition. We need to understand however that ESG sometimes pays and sometimes doesn’t for companies. Per a recent report from the UN-convened Net-Zero Asset Owner Alliance (NZAOA), corporate engagement becomes increasingly less effective when the business case for the requested action is impractical, uneconomic, or uncertain. When the decarbonisation needed is not technologically feasible, lacks sufficient economic incentives, or lacks stable, predictable, and reliable policy frameworks to build a business case, it will not materialise at scale through corporate engagement alone. Therefore, investors need to expand the breadth of their efforts and move from novel forms of engagement to increase efforts in sector/value chain engagement, policy engagement, and asset manager engagement. Available guidance On net-zero, there are several relevant initiatives that support financial institutions’ actions to reduce climate impacts across investment and lending portfolios. With criteria in these resources representing minimum requirements for target design, and given the lack of progress in the real world, we all need to contribute more resources and provide best practice examples to drive broad sector implementation. Below I highlight four of these resources. First, the Science Based Targets initiative (SBTi) has issued near-term guidance for financial institutions and newly launched a net-zero foundations paper for financial institutions, which provides complimentary net-zero targets and will work in parallel. Both include dedicated information and recommendations around how to use engagement as a mitigation strategy. The foundations paper will be followed by an open stakeholder process to develop actionable criteria, detailed guidance, and technical resources to support financial institutions in the formulation and implementation of their science-based net-zero targets. Importantly, to reach broad alignment and usability, SBTi collaborates with both GFANZ and NZAOA around the latter’s Target Setting Protocol to ensure the frameworks account for potential differences in philosophies. Second, the Paris Aligned Investment Initiative (established by IIGCC) published their Net Zero Investment Framework in March 2021, which provides a set of recommended actions, metrics and methodologies for investors to maximise their contribution. It currently covers the asset classes Sovereign bonds, Listed equity, Corporate Fixed Income and Real Estate, with active plans for extension. Third, the Investor Agenda’s Expectations Ladder, released in May 2021, provides clear expectations and actionable steps for Investor Climate Action Plans (ICAPs). These are aligned with and complementary to the investor net-zero alliances guidance, providing a good stepping stone for investors early on in their net-zero journeys that accounts for differences in progress in investors’ climate journeys. Fourth, the Institutional Investors Group on Climate Change (IIGCC) has launched a new toolkit, which provides a systematic framework consisting of six key steps that codifies best practice for all investors, aligned with the aforementioned net-zero investor initiatives. Author: Rickard Nilsson, Spokesperson and Director, Strategy & Growth at Esgaia. With years of experience in responsible investing, Rickard focuses on market intelligence and outreach, and promotion of industry best practices. He is passionate about all things esg, especially investment stewardship and how engagement can help advance sustainability practices. For more information, visit www.esgaia.com

Focus on opportunities and challenges, expectations, and roles for more effective investor stewardship. As originally published in Esgaia's annual insights report in early February. Q: What topics and outcomes are increasingly emerging in investors’ active ownership activities? - Generally, we’re seeing a greater focus on systemic sustainability issues within investors’ active ownership or stewardship activities. Obviously, climate change is a key example of this, and one which continues to grow as a focus area, but topics like biodiversity, and various human rights-related issues like inequality, polarisation of societies, and equity and inclusion (not just diversity), are continuing to grow in focus. Q: Collaboration is an important tool for increased influence. With a veritable myriad of engagement initiatives being launched in recent years, how do we ensure continued growth in collaboration and the impact thereof? - Well, the first thing to say is that growth in this area is a good thing! Stewardship suffers from a collective action problem, in that everyone benefits regardless of how much work they put in, and we think that collaboration is the best way to address this. Mechanisms that pool investor resources to help divide responsibilities and drive the needed action are to be welcomed. As we see more initiatives being formed, we hope to see a continued focus on strategies that can achieve real-world outcomes, particularly those that recognise that we need system or market-level change for many issues, not just improvements in risk management by individual investees. Impact can also be aided through good use of the formal and informal institutions we already have. Be it making use of the PRI’s Collaboration Platform and other software tools, or simply by picking up the phone to investors and investor networks who have coordinated or been part of initiatives in the past, there’s much to be gained from not reinventing the wheel, or at least, not completely reinventing it! Q: Many speak of the sustainability challenges facing modern society as a market failure, accentuating the importance of effective public policy to set direction. What responsibility should we expect from financial market participants here in terms of advocacy? - I couldn’t agree more that sustainability challenges are a market failure, and that public policy needs to be strengthened to improve this. Good public policy is often the most effective way to achieve progress on an issue – countless papers have been written about the effectiveness of carbon pricing, for example – so I think it’s on investors to use their voice and their influence to encourage this kind of policymaking. Policy engagement of this kind is in investors’ interest, helping to avoid systemic risks, but may also be required of fiduciaries, as the recent Freshfields, PRI, UNEP FI, and Generation Foundation report A legal framework for impact has found. Q: Global efforts, including that of the finance industry, are falling short of agreed goals, which leads us to a couple of questions on advancing active owner practices and improving market dynamics: - What are some concrete ways that will allow investors to focus more on critical systemic or society-wide goals and outcomes? - Better conversations between different parts of the investment chain is one area to start. Asset owners can drive demand amongst investment managers for stewardship focusing on such issues. Investment managers can use their focus on systemic issues as a point of differentiation. Those with beneficiaries can work to understand their beneficiaries’ preferences on these issues, and through that process, explain to beneficiaries just how relevant stewardship is to protect their investments by seeking change in the world. I’d also add collaboration here too. Pooling resources, as we’ve discussed earlier, is a key tool to drive change more efficiently. - How can we as an industry address some of the structural barriers to effective stewardship such as short-termism, information asymmetry and corporate access? - A similar list applies to this one. Better conversations, better demand for good stewardship from asset owners, and supply from investment managers. Others in the investment ecosystem, like pension regulators and consultants, also have a role to play here in encouraging practices that drive a broader, more long-termist, and economy-wide view of investors' roles and responsibilities. One last question: Investors are today expected to measure impact across investment and active ownership activities, any thoughts on how investors should go about measuring this amidst a jungle of sustainability data and metrics? - This is a really difficult question and one that others will have more technical answers to. From my side, I’d simply encourage more honesty and realism in tracking progress and communicating on it. Firstly, be honest about what your goal is and why you’re doing it: Are you seeking to align your investments with your values? Are you seeking to drive systemic change? Secondly, be clear about what you’re putting into achieving your goal: How are you working to achieve your goal? What resources are you putting into that? And thirdly, be honest about what you’ve achieved, what you haven’t, and how much you can attribute to your own actions (even if small): Achieving real-world change on complex issues isn’t a simple linear process, and we need to be honest about that. Instead, communicate clearly on progress towards key goals and explain how results you’ve achieved so far fit into a broader theory of change for how the outcome will be achieved. We thank Paul for his contributions and great insights! Interviewer: Rickard Nilsson, Director, Strategy & Growth, Esgaia Interviewee: Paul Chandler, Director of Stewardship, UN PRI.

Evolving expectations result in increasing demand for data and transparency from asset owners to their external managers. By providing functionality for aggregating asset managers’ engagement activities, Esgaia’s software helps strengthen transparency and accountability across the value chain. It supports asset owners in their stewardship reporting and engagement with asset managers. Transparency and reporting requirements In most jurisdictions, investors are expected to report on their engagement and voting activities to their stakeholders. Investors should publicly disclose their stewardship policies and activities, and report to beneficiaries or clients on how they have been implemented so as to be fully accountable for the effective delivery of their duties. Using a balance of both qualitative and quantitative information, reporting should provide insight into how investors practice stewardship and allow stakeholders to understand the scope and scale of activities. Even if, at least in Europe, it would be enough for the appointed asset manager to publish a stewardship report annually, best practice today demands a lot more to really function as an important accountability mechanism to stakeholders and civil society. Esgaia’s solution Our software strengthens oversight, reporting and communication between trustees and their appointed asset managers. Offering a specific license to asset owners, the system can currently be used to analyze and report on engagement activity undertaken on behalf of the asset owner: Periodically upload individual asset managers’ engagement activities using standard templates Analyze and compare portfolio/mandate coverage, activity levels and quality, including outcomes Aggregate statistics for stakeholder reporting Enable manager self-reporting to monitor engagement activities over time This solution helps asset owners and asset managers ensure their engagement priorities and objectives are aligned. Over time, optimizing this process will reduce duplication efforts, and enhance impact through greater accountability, coordination and collaboration. Please contact us if you want to know more. Author: Anton Ljung, CEO, Esgaia anton@esgaia.com

Terra Alpha will implement Esgaia’s purpose-built engagement tracking software to support its active ownership practices. Esgaia, a Swedish software company, facilitates institutional investors’ engagement processes by providing a dedicated engagement management and recording platform. Terra Alpha will use the software to record, monitor, and coordinate activities across the organization. Anton Ljung, CEO at Esgaia, comments: “This is another example of Terra Alpha’s commitment to sound investment stewardship. While our current clients provide the necessary proof-of-concept of the software - as one of our first US-based clients - we really look forward to benefitting from their knowledge and insights in platform development to help drive engagement success and improvements of overall market dynamics.” Contact information Anton Ljung, CEO, Esgaia AB anton@esgaia.com Terra Alpha Investments is an employee and investor-owned investment management firm based in Washington, D.C. The firm was founded in 2014 by highly experienced investors, and operates an actively managed global public equities strategy using a hybrid quantitative/qualitative investment process. Website: www.terraalphainvestments.com

Recently there has been a lot of focus on the SEC’s proposals on climate disclosure. Less prominent though are some worrying developments in the US on disclosure rules that would negatively impact activist investing, and in so doing, their ability to influence for change. In summary, the proposed rule changes would essentially make activist investing less likely because 1) it reduces activists' ability to build economically viable positions, and 2) decreases efforts to increase influence through collaboration. So, while the SEC on the one hand is following suit on the backend of developments in the sustainable finance space by asking companies for climate disclosures, they are on the other hand reducing shareholders’ ability to actually pressure companies. For a detailed article on the disclosure proposals, read this Bloomberg column by Matt Levine. The case for activism Shareholder activism is still today a highly debated area, however, net of its advantages and drawbacks, it should help to make both companies and markets more efficient, optimizing capital allocation and corporate decision making. Certain findings I would like to highlight here include: Research showing that even good management practices are not adopted by many organizations because of cognitive, knowledge, incentive, and capability barriers. What research tells us about activism and its effects, where Professor Alex Edmans effectively makes the case for activism, concluding e.g. that “the key characteristic of an investor isn’t so much its holding period as its stake. Only investors with large stakes will have sufficient “skin-in-the-game” to truly engage with a firm, and undertake restructurings that increase productivity and investment efficiency for the benefit of the firm and society as a whole.” The paper “Investor Relations, Engagement and Shareholder Activism”, which study how the appointment of an investor relations officer (IRO) is associated with the likelihood and extent of activism. In discussing overall findings, the authors suggest that direct and ongoing IR engagement is an important factor in achieving mutual understanding and trust between the firm and its shareholders, which deters activist investors and mitigates the costly escalation of activist campaigns. The active ownership continuum Over the years, regulatory and technological changes have disrupted the balance of power between management and shareholders. At the same time, the struggle to influence shareholder opinion by corporate managers and activists respectively has led to calls for more engagement between companies and investors. As such, engagement dialogues play an important role, both in terms of building trust and aligning on longer-term plans with companies (providing them with preventive rather than reactive defenses against sometimes costly activism), or by functioning as an accountability mechanism (together with activism) influencing companies when their performance is lacking. Enhancing collaboration To progress on many challenging esg issues, we need to increase collaboration and ensure a fair and level playing field for the different forms of active ownership globally. In this quest, we should work to address both regulatory hurdles and collective action problems. Starting with the former, - which brings us back to the discussion of how the SEC’s proposal seemingly makes collaboration harder - acting in concert regulation is often perceived as a key regulatory barrier when investors seek to engage collaboratively with companies. The very lengthy, but highly informative report A Legal Framework for Impact, by law firm ‘Freshfields Bruckhaus Deringer’, mentions that in all jurisdictions there is scope for investors to work together to achieve sustainability impact goals, however they will need to comply with various rules on collective action to influence or control the activities of business enterprises. While most stewardship codes and guidelines approach collaboration in a way that is compliant with such regional regulation, it is still important that institutional investors have a clear understanding of these acting in concert scenarios and disclosure requirements. In an effort to further assist investors here, the PRI is working on providing separate overviews of such regulation across certain key markets, including the UK, where guidance is available. There, the Financial Services Authority (FSA) has stated that it did not believe that its regulatory requirements prevent collective engagement by institutional shareholders designed to raise legitimate concerns on particular corporate issues where these simply involve ad hoc discussions or understandings. Moving on to the collective action problem, whereby everyone benefits from active ownership efforts regardless of how much work they put in. Herein, importantly, we need to strengthen the mechanisms that pool investor resources to help divide responsibilities and drive needed action. Here are some suggestions of what we need more of: Improved engagement dialogues, focusing on achieving real-world outcomes, addressing both individual and system-level risks. Increased demand (and accountability) and supply from asset owners and managers respectively for quality investment stewardship. Responsible action and lobbying from others in the investment ecosystem, like regulators and industry associations. Innovation that effectivizes stewardship through a) pooling investor resources, and b) supports transparency, process efficiency, and so forth. Where do we go from here? Well, responsible investing has a powerful ally in both activism and active ownership. It can help ensure proper governance of assets, balancing both financial as well as social and environmental objectives. The question today is rather: will we ensure the pace of change is fast enough? Author: Rickard Nilsson, Spokesperson and Director, Strategy & Growth at Esgaia. With years of experience in responsible investing, Rickard focuses on market intelligence and outreach, and promotion of industry best practices. He is passionate about all things esg, especially investment stewardship and how engagement can help advance sustainability practices. For more information, visit www.esgaia.com

Granahan has decided to implement Esgaia’s independent, purpose-built software to support its investment stewardship practices. Esgaia, a Swedish software company, focuses on helping institutional investors optimize their engagement process by providing a dedicated engagement management platform. Granahan will use the solution to simplify recording, monitoring, and coordination of engagement activities across the organization, while advancing stakeholder reporting using automated statistics on both entity and product level. Jane White, CEO of Granahan Investment Management, commented: “The lack of standards surrounding ESG regulation makes process implementation difficult. The Esgaia platform helps us apply the engagement best practices we’ve defined at GIM, while also giving us the flexibility to refine and evolve in this continuously changing regulatory environment. We are thrilled to partner with a provider that is helping investors report on engagement practices more easily.” Anton Ljung, CEO of Esgaia, said: “Granahan is one of our first US-based clients, which says a lot about their intent and drive towards engagement best practice. Purposeful engagement is about setting expectations and helping entities manage important issues, using accountability and consequence as levers. By providing use case centric functionality and continuous improvements, Esgaia’s software supports investors in this endeavor. We look forward to advancing investor practices together with Granahan.” Contact information Liz Ziegler, CMO, Granahan Investment Management lziegler@granahan.com Anton Ljung, CEO, Esgaia AB anton@esgaia.com Granahan Investment Management (GIM) was founded in 1985 by investment professionals with a passion for small capitalization growth equity investing, and the sole purpose of providing high-quality small cap portfolios to institutional investors and wealthy individuals. Today, the 100% employee-owned firm has $4.4B Assets under Management across their small-cap equity lineup. Website: www.granahan.com

Establishing a smooth engagement process workflow can be hard. To avoid suboptimal use of resources, investors need to holistically assess process efficiency and system capabilities. Esgaia’s new eBook provides actionable insights and requirements for ESG teams and investment departments on how to successfully operationalise the engagement process. Areas covered include: Managing increasingly complex engagement strategies, while ensuring flexibility and scalability over time. Effectivising stewardship reporting and disclosures on entity, product and engagement level. The importance of focusing on the user experience to support ease of use, main use cases, and organisational alignment. Why using system integrations is essential for smooth workflows across teams, and How a cloud-based infrastructure can enhance internal and external collaboration. Access it below, or read a summarized version via ESG Today As outlined in the ebook, we have developed a generic checklist covering primary functionality needs in engagement management. To access the file, click here.

Genesis has chosen Esgaia’s independent, purpose-built software to further optimize the engagement process. Esgaia, a Swedish software company, is focused on simplifying institutional investors' engagement recording and stakeholder reporting by providing a dedicated engagement management software. Genesis will use the solution to assist with activity tracking, progress monitoring, and coordination of engagements across the organisation. Utilising the software comes at a time when Genesis Investment Management is continuing to advance its investment stewardship practices to help improve sustainability outcomes. Anton Ljung, CEO at Esgaia, comments: “Addressing market challenges to adequately record, monitor, and evaluate engagement progress, Esgaia’s Software-as-a-Service model provides investors with use case centric functionality, proof-of-concept, time-saving, and continuous improvements. We are encouraged by Genesis Investment Management’s ambition and foresight, and we look forward to working with them to increase efficiency, and in turn, their influence and real-world impact." Contact information Anton Ljung, CEO, Esgaia AB anton@esgaia.com Genesis Investment Management, LLP provides investment management and advisory services to institutional clients invested in emerging market equities. Website: www.giml.co.uk

Applicable for those who invest on behalf of UK savers and pensioners, the updated UK Stewardship Code sets high expectations on investors’ stewardship practices. Even if voluntary on paper, much like with stewardship codes in other regions, requirements in the Code receive broad market uptake as e.g. many UK-based asset owners would demand Signatory status of those who run money for them. Out of the original applicants, two-thirds made the first cut. With the next application deadline coming up on 30th of April 2022, we suspect many investors to be hard at work with their applicant/compliance reports, or their annual stewardship reports, as these can be one and the same. In this blog post, we outline how Esgaia supports UK Stewardship Code signatories in fulfilling their commitments. Policy statements are not enough In November 2021, FRC issued guidance on effective stewardship reporting, with examples from the first reporting instance, setting expectations for 2022 applicants. According to FRC, most of the organisations that did not fulfill the criteria of becoming a signatory in the first round relied too heavily on policy statements, and the FRC would also like to see improvements to reporting on the management of market-wide and systemic risks, as well as approaches to stewardship in asset classes other than listed equities. Importantly, with the applicant reports being the only material the FRC evaluate alignment against the principles with, the code put a lot of importance on reporting, and the ability to display and exemplify activities and outcomes, and not just high-level policy commitments. From an engagement perspective, the code does not prescribe a single engagement approach, but rather asks organizations to increase their transparency on how they - or those that engage on their behalf - practice it. Esgaia supports investors' compliance with the Code in several ways. Below, we outline key platform functionality for investors looking to become, or remain a signatory of the Code. Principle 2: Governance, resources, and incentives “Signatories should explain how they have appropriately resourced stewardship activities, including their investment in systems, processes, research, and analysis." By using Esgaia’s purpose-built software, signatories indicate that they have invested in suitable infrastructure that enables a more structured approach to the engagement process. The Software-as-a-Service model inherently provides for proof-of-concept, with continuous client-informed improvements aligned with evolving best practices. The cloud-based system and use case centric functionality help improve efficiency, transparency. and coordination across the organisation. Principle 4: Promoting well-functioning markets “Signatories should explain e.g. how they have identified and responded to market-wide and systemic risk(s), as appropriate; the role they played in any relevant industry initiatives in which they have participated, the extent of their contribution and an assessment of their effectiveness, with examples” The platform allows you to record activities across different entities, meaning you can capture much of your contributions across individual or thematic engagements - addressing systemic issues and root causes by targeting different actors across specific value chains -, networks participation, working groups, policy advocacy, and so forth. Principle 6: Client and beneficiary needs “Signatories take account of client and beneficiary needs and communicate the activities and outcomes of their stewardship and investment to them.” In a three-part blog series covering the engagement process, one entry covers reporting and disclosures. Therein, we discuss expectations and best practices, including perspectives on reporting objectives and stakeholder groups, information types and intent of use. Principle 7: Stewardship, investment, and ESG integration “The interaction between teams, including portfolio managers and ESG specialists, should be explained.” The Code highlights that signatories should explain how the interaction between different teams takes place. In our experience, many investors struggle with this collaboration and information sharing between relevant internal stakeholders - achieving an efficient workflow where data is easily accessed with systematic records of interactions can be accomplished in a shared cloud-based environment, such as Esgaia's platform. Principle 9: Engagement “Signatories should describe the outcomes of engagement that is ongoing or has concluded in the preceding 12 months, undertaken directly or by others on their behalf.” The Code strives for transparency and reporting exemplified through case studies, activities, and outcomes. In our software, investors benefit from functionality such as: ability to link activities and progress evaluation to objective-specific engagements, for which a systematic record and timeline of activities is created. customizable milestone or KPI frameworks for monitoring progress against identified objectives. listing outcomes for concluded engagements, and potential investment implications at your end. data logs of all activities (phone calls, meetings, site visits, etc.) and counterparties (Board, C-suite, IR, Operational management, etc.), captured in e.g. statistics dashboard. PDF case studies, which offer a quick way to exemplify engagements to certain stakeholders Principle 11: Escalation: “Signatories, where necessary, escalate stewardship activities to influence issuers” In our second blog post on evolving expectations and market practice in the engagement process, we provide a spotlight on the initiation phase, monitoring, and escalation. Investors today struggle with oversight and monitoring of engagement activities, making timely follow-ups harder, which can undermine your ability to excert influence in the first place. Using Esgaia’s software, investors can support escalation strategies by setting deadlines on both engagements and milestones, and follow-ups on certain activities. Users then get notified on upcoming deadlines, both in the system and via email. Principle 12: Exercising rights and responsibilities “... the Code encourages complete disclosure of listed equity voting records …” One of the most common ways for investors to try and influence companies and exert their rights as a shareholder is by voting at AGMs. Also here, the updated Code is looking to improve transparency and accountability by demanding public voting records. In order to improve alignment between engagement and voting activity, it is possible to import voting data to link specific votes to engagements, and for coherent reporting of active ownership activities. Want to get in touch? Send us a message!

In a three-part series covering the engagement process, we provide views on evolving expectations and market practice for more effective investor stewardship. The first entry focused on Objectives, Strategy, and Prioritization. The second entry covered the Initiation phase, Monitoring, and Escalation. In this third entry, we provide a spotlight on what voluntary and statutory initiatives require in terms of active ownership reporting and disclosures, outlining expectations and best practices. See drop-down sections below for more information. Want to get in touch? Send us a message. Endnotes: 1) https://www.icgn.org/icgn-global-stewardship-principles 2) https://www.frc.org.uk/getattachment/42122e31-bc04-47ca-ad8c-23157e56c9a5/FRC-Effective-Stewardship-Reporting-Review_November-2021.pdf 3) https://www.unpri.org/download?ac=4151&adredir=1&adredir=1 4) https://www.unpri.org/download?ac=4449&adredir=1 5) https://www.unpri.org/sustainable-development-goals/investing-with-sdg-outcomes-a-five-part-framework/5895.article 6) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3966695 7) https://www.unpri.org/download?ac=13902 8) https://www.esma.europa.eu/sites/default/files/library/esma30-379-1051_sustainable_finance_roadmap.pdf

Recently, the field of responsible investing has been debated and challenged on its effectiveness in terms of real-world impact(1,2). While the finance community at large agree on the premise of responsible investing, its ability to influence markets and direct capital flows in a more sustainable direction, the supporting evidence diverges across different strategies. For example, as Jon Hale at Morningstar recently noted, driving up companies’ cost of capital based on capital flows is currently more a theoretical implication, yet to establish a stronger link(3). Moreover, academic researchers Julian F. Kölbel et al(4) found that investors can directly influence companies through shareholder engagement, but only indirectly through capital allocation impact unless targeting for example markets where external capital is a limiting factor. Another study by Marco Ceccarelli et al(5) found that leaders - identified as institutions that lead and support separate collaborative engagements via the PRI during a given year - alone explained the positive relationship between institutional ownership and firms’ environmental and social performance. And even if the evidence was not enough to demonstrate a causal effect of Leaders on corporate sustainability, the authors note that while the majority of institutional investors advertise a commitment to sustainability, only a minority positively drives corporate sustainability. Status quo Today, from an economic systems viewpoint, so-called mixed economies predominate because of the blend of markets and government. These economies are regulated by governments to correct market failures, such as pollution. And even if capitalism has underpinned increased economic prosperity and social welfare, societies face many market failures, or systemic ESG challenges if you will, such as climate change, biodiversity loss, and poverty. Still, we don't have a global price on carbon, fossil energy exploration and deforestation continues, and the respect of human and labour rights has declined during the pandemic, with a lot of work still needed on for example regional and jurisdictional adaptation of the decade-old UN Guiding Principles on Business and Human Rights(6). The situation we find ourselves is driving the shift towards stakeholder capitalism and has resulted in the mainstreaming of ESG. However, there should be no question around how this promise of responsible investments has benefitted many, monetarily speaking. Just take a look at the inflow of capital to ESG or RI labeled strategies over the last decades, the growth has been nothing but staggering. Recognizing that it does require effort and budget spend on ESG research, human capital, technical infrastructure, and so forth - concurring with an overall downward pressure on fees and margins -, analysis has shown that these funds historically have incurred higher fees (7, 8, 9) The ripple effect of change Status quo evidently does not provide for the progress or urgency needed to reach the UN 2030 agenda or the Paris accord. In order to break through the noise, you need a critic(10) who provides a stance in stark contrast to common perception. This is often an ungrateful position to take, but arguably an important one as it spurs discussion, and creates a ripple effect functioning as a change agent. As in most instances though, we seldom find the answer to be either black or white, but rather unfolding over a spectrum. A way forward There is no doubt that responsible investing at least functions as a norm influencer in secondary markets. The role of engagement and impact investing (in otherwise capital-constrained companies) need therefore to be recognized as primary drivers of change. And yes, there are also valid criticisms of engagement: Some investors claim active ownership without a well-structured process and far from responsible activity levels, which results in a lack of tangible progress, and engagement essentially being used as a greenwashing mechanism. Increasing stewardship commitments, especially around collaboration and support of public policy (11, 12), should be a prioritized objective to help transform societies and meet evolving fiduciary duties globally (read: investor responsibilities)(13, 14). And while I fully agree with the notion that responsible investing, in general, is accentuating the need for policy intervention and not the other way around, doing more is frankly what should be demanded of us if we were truly serious about our values and intent. Tip Listen to the podcast 'Grow the Pie: does ESG investing work? How?' with Alex Edmans and Tom Gosling where they partly discuss evidence on the real-world impact of different ESG investment approaches: shorturl.at/xBIN9 Author: Rickard Nilsson, Director, Strategy & Growth @ Esgaia Rickard is passionate about all things esg, especially investment stewardship and how engagement can help advance sustainability practices. With years of experience in responsible investments, in his role at Esgaia, he focuses on market intelligence and outreach, and promotion of industry best practices. References 1) https://medium.com/@sosofancy/the-secret-diary-of-a-sustainable-investor-part-1-70b6987fa139 2) https://www.wsj.com/articles/why-the-sustainable-investment-craze-is-flawed-11642865789?mod=Searchresults_pos7&page=1 3) https://www.morningstar.com/articles/1076701/what-the-wall-street-journal-missed-about-sustainable-investing 4) https://www.researchgate.net/publication/329600669_Beyond_Returns_Investigating_the_Social_and_Environmental_Impact_of_Sustainable_Investing 5) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3988058 6) https://corporatejustice.org/news/justice-delayed-10-years-of-un-guiding-principles/ 7) https://www.morningstar.com/content/dam/marketing/shared/pdfs/Research/annual-us-fund-fee-study-updated.pdf 8) https://www.ft.com/content/7f18db79-9275-434c-a024-6226eb186408 9) https://www.wsj.com/articles/tidal-wave-of-esg-funds-brings-profit-to-wall-street-11615887004 10) https://medium.com/@sosofancy/the-secret-diary-of-a-sustainable-investor-part-1-70b6987fa139 11) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3988058 12) https://www.theimpactivate.com/public-policy-engagement-another-lever-for-esg-investors-to-pull/ 13) https://www.unpri.org/download?ac=13902 14) https://www.unepfi.org/wordpress/wp-content/uploads/2019/10/Fiduciary-duty-21st-century-final-report.pdf

We are proud to share the first Esgaia Insights report! The aim of this 'Evolution of active ownership' report series and other market outreach is to provide stocktake on trends, opportunities, and challenges for more effective ESG engagement, helping to educate and advance stewardship practices. The report features platform insights over the previous year, client case studies on engagement priorities and processes, and a spotlight on current market dynamics with an article and interview. Key insights include for example: Climate change, human rights, and board effectiveness remain high on clients’ agendas given the pandemic and the growing urgency of many ESG issues. Driven by regulatory developments in Europe, clients are starting to link engagements in the system to specific PAIs (relevant to SFDR) to demonstrate action. The case studies show the importance of an integrated, well-governed process, for example as it regards ensuring engagement capacity also in investment departments, and using sessions with internal stakeholders to focus efforts and facilitate a learning environment. Industry participants should increase policy advocacy through both direct support and coordinated efforts. Enjoy the read! //The Esgaia team Acknowledgements Esgaia thanks the following people and organisations for their contributions: Karine Hirn, Partner, Board chair and Chief Sustainability Officer, East Capital Group Richard Garstang, Partner and Portfolio Manager, Oldfield Partners Victoria Lidén, Senior Sustainability Analyst, Storebrand Paul Chandler, Director of Stewardship, PRI