In a three-part series covering the engagement process, we provide views on evolving expectations and market practice for more effective investor stewardship. The series covers phases of the engagement process as summarized below: Objectives and Strategy: Establish, revise and provide transparency on engagement strategy to stakeholders Prioritization: Observe portfolio companies to identify risks and opportunities to inform selection Engagement and monitoring: Engage, review of progress and suggested actions Escalation: Where unsuccessful or insufficient progress, escalate according to strategy Reporting: Provide insight on activities and value creation to clients, beneficiaries and regulators The first entry focused on Objectives, Strategy, and Prioritization - covering in part: Building blocks for a successful program Stewardship across asset classes Engagement prioritization Mitigating systemic risks Collaboration and advocacy In this entry, we provide a spotlight on the initiation phase, monitoring, and escalation. See drop-down sections below for more information. The third entry will focus on Stewardship reporting and disclosures. Want to get in touch? Send us a message. End notes: 1) https://www.unpri.org/stewardship/about-stewardship/6268.article 2) https://www.frc.org.uk/getattachment/42122e31-bc04-47ca-ad8c-23157e56c9a5/FRC-Effective-Stewardship-Reporting-Review_November-2021.pdf 3) https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter 4) https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/5-sustainability-themes-to-expect-in-2022?utm_campaign=SCS%20-%20Content%20Marketing&utm_medium=email&utm_content=200775766&utm_source=hs_email 5) https://www.unpri.org/download?ac=4637 6) https://www.hhs.se/contentassets/8c081579b18b4c0b854d240b847f157e/full-report-active-ownership-emma-sjostrom-final.pdf 7) https://www.nbim.no/en/publications/expectation-documents/ 8) https://www.unpri.org/download?ac=4151 9) https://www.ceres.org/sites/default/files/reports/2017-03/21st%20Century%20Engagement%20-%20Investor%20Strategies.pdf 10) https://mneguidelines.oecd.org/RBC-for-Institutional-Investors.pdf 11) https://www.iigcc.org/download/net-zero-investment-framework-implementation-guide/?wpdmdl=4425&refresh=61ee6777ee6381643014007 12) https://www.abp.nl/images/Press%20Release%20Fossil_EN.pdf

Having a well-articulated and credible active ownership strategy is becoming a hygiene factor for many investors and applicable strategies. Engagement has evolved from primarily a focus on fact-finding and utilization of voting rights to working closely with issuers and other stakeholders to set expectations and help develop strategies to tackle many of the challenging issues currently facing our societies. Today it’s about advancing your fiduciary duty to clients and beneficiaries by ensuring proper governance of assets, balancing both financial as well as social and environmental objectives. For anyone looking to advance their stewardship strategy, there are some excellent resources and guidance out there which will help you understand value creation mechanisms for investors and companies alike, opportunities and barriers to effective engagement and so forth. However, striving for best practice is to aim at a constantly moving target. - in this three-part series, we focus on the engagement process and provide views on evolving expectations and market practice for more effective investor stewardship. Engagement process - summarized in phases: Objectives and Strategy: Establish, revise and provide transparency on engagement strategy to stakeholders Prioritization: Observe portfolio companies to identify risks and opportunities to inform selection Engagement and monitoring: Engage, review of progress and suggested actions Escalation: Where unsuccessful or insufficient progress, escalate according to strategy Reporting: Provide insight on activities and value creation to clients, beneficiaries and regulators Entry no. 1: Engagement Objectives, Strategy, and Prioritization This article addresses the following areas: (see drop-down sections below) In the next entry, we will focus on engagement initiation, progress evaluation and escalation. Stay tuned! Want to get in touch? Send us a message. Endnotes: 1) https://www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814a-d14e156a1d87/Stewardship-Code_Dec-19-Final-Corrected.pdf 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 4) https://www.unpri.org/download?ac=4449

New year = new functionalities! In this post, you can read about the latest functionality updates on the Esgaia engagement management and recording platform. Deadlines on milestones and engagements. Investors’ ESG engagement activities are characterised by a range of enablers and barriers to engagement success. On the challenges side, corporates perceive for example investors to lack quality and continuity in interactions and in the tracking of engagement and corporate progress. This new functionality helps you stay on track to ensure continuity and progress in dialog. PDF case studies of your engagements. It’s now possible to export a report of an engagement for internal and external usage. You can decide what modules (Objective, milestones, timeline, etc.) to include in the export. You can hide or anonymise certain fields and include a custom introduction and summary. The feature can be found on the engagement page under “Additional options”. Voting records module. Investors are increasingly expected to demonstrate a holistic and aligned responsible investment strategy with consistency across ESG integration, engagement and voting activities. The new voting module allows you to improve this alignment by integrating and linking voting activity to engagements. Voting records and rationale can be included in Engagement timelines to support dialogue activities and narrative. Real-time statistics module on your website. Similar to how many investors show live voting records, this new functionality of website embeds enables you to show live engagement statistics across e.g. specific funds or mandates. This functionality is probably a market first on the engagement side. Company controversies. A common triggering point or research input to engagement is controversy research. If you have identified a controversy, you can add that to the company profile and link it to an engagement. Contact us to learn more about the updates and to discuss general inquires.

“Investors’ active ownership strategies provide good examples of ambition levels to influence portfolio companies to become more sustainable and, in turn, enable real world change,” says Frida Femling, CIO and Co-founder of esgaia. Author: Christopher Jacklin 13th of December, 2021 Sustainability has become more in focus on a global scale than ever before. No matter if you discuss sustainability in relation to environmental, social, or governance (ESG) factors, during the last few years, a need for change has become increasingly highlighted by events such as the global spike in wildfire activity (1,2), rising anxiety and depression rates due to Covid-19 isolation measures (3), and controversial company governance during the pandemic, such as paying out dividends or big bonuses when state aid has been obtained and not repaid (4). The question is, how can we solve these multi-parametric issues as a global community? Well, if the age-old saying “money makes the world go ‘round” holds true, then “the money” could be a good place to start. In the investment world, a shift towards “green” or “sustainable” investing is evident. Global sustainable investments now top $30 trillion USD, which is an increase of 68 percent since 2014, (5) with sustainable assets under management (AUM) estimated to reach $53 trillion USD by 2025 (6). From a geographical perspective, Europe leads the global market in ESG AUM, followed closely by strong progress in the US and assumed future developments in Asia. “The term ‘ESG’ has spread out from the investment world. It helps investors evaluate the sustainability performance of companies and their investments,” says Femling. Take the example of ESG ratings. There has been incredible growth in investor utility of these ratings, which serve a multitude of use cases, ranging from inclusion in valuation models and investment decision-making to screening, thematic investing, and index construction. Usually, these scores are not determined by the investors themselves, but rather by third-party rating firms. Hans Taparia, Associate Professor at the New York University Stern School of Business, points out that there are some challenges with this system. According to Taparia, ESG ratings do not normally reflect the effects of a business’ operations on the environment and society, but rather they measure “the degree to which a company's economic value is at risk due to ESG factors” (7). A problem with evaluating ESG criteria in this manner is exemplified by the recent addition of Philip Morris International (PMI) to the Dow Jones Sustainability index (8), despite the fact that PMI sells billions of cancer-causing cigarettes yearly and have an overwhelmingly male-dominated Board of Directors (11:2, male: female) (9). A second challenge with the current ESG ratings industry is that rating firms implement different methodologies, which result in ESG scores that are ultimately subjective and vary across firms. This subjectivity leads to a divergence in a company’s score depending on which rating firm has done the calculation (10). Furthermore, because ESG ratings are aggregates of environment (“E”), social (“S”), and governance (“G”) risks, a company that receives a low-risk score in one area might face high-risk in others, which could still lead to a relatively low-risk aggregate score depending on the weight assigned to each risk/factor. Taparia exemplifies this through Coca Cola, who has received low ESG-risk scores despite selling addictive products that have been linked to major causes of diabetes (11, 12). “Companies can still receive relatively low-risk ESG scores even if, for example, they are involved in business activities that are conceivably incompatible with a sustainable and just transition,” says Femling. “Esgaia makes it easier for investors to manage their active ownership activities.” - Frida Femling, CIO and Co-founder of esgaia Femling and her team are creating a platform to promote active ownership by facilitating the ESG-engagement process for investors. According to her, active ownership differs from ESG-integration. “We define active ownership as a strategy where investors use their ownership to encourage sustainable change. It means that investors can, for example, push a company to raise its minimum wage by engaging in a dialogue with the company, or by using their vote at the AGM. An ‘ESG-integration strategy’, to make a comparison, is when investors account for companies’ or funds’ ESG credentials when investing,” says Femling. From an impact perspective, the notable difference that Femling highlights between the two responsible investment strategies are that active ownership, as the name suggests, is a method of using your rights as a shareholder to voice concerns and engage companies to make sustainable changes, whereas ESG integration focuses on the capital allocation effect by seeking impact through investing in more sustainable companies. Despite the differences between active ownership and ESG integration, it is clear that both strategies work synergistically. For example, rating information around exposures and management levels can be used by investors as input for engagement to de-risk target portfolio companies. “For example, given the many IT security breaches in recent years, investors are increasingly engaging with companies concerning the implementation of more robust IT security policies and systems, which can reduce the risk of breaches in the future and, in turn, minimize the risk of negative effects on shareholder value,” says Femling. “Esgaia makes it easier for investors to manage their active ownership activities,” says Femling. Offering investors a purpose-built, independent solution promoting best practice, Esgaia already has investors with over €235B in AUM active on the platform. The solution enables investors to record, track and coordinate tasks across investment teams, automate reporting, and collaborate with other investors to increase influence and efficiency. Esgaia also offers a collaborative feature where investors from different firms can co-create and drive engagements. This allows both large and small investors to pool their capital together to increase legitimacy and power when engaging with companies. The need for sustainable corporate change is evident, and active ownership will be one important catalyst to increase the speed at which it happens. Femling believes that the strategy should play a more prominent role in the development of responsible investing, and she is encouraged by the many market drivers speaking in its favor. For example, the UK’s Financial Reporting Council (FRC) UK Stewardship Code, through which there is an increased focus on engagement and active ownership highlighted in the twelve guiding principles aimed at setting high stewardship standards for asset owners and asset managers, as well as for the service providers that support them. “Sustainability has gone from something that was trendy to something that is crucial to your investment strategy and to any business’ survival. If investors and companies don’t focus on sustainability, they will have a hard time to compete and stay in business,” says Femling. If you’re interested in learning more about esgaia’s solution, visit their website, or contact Frida Femling directly for business inquiries. Keywords: ESG, ESG integration, active ownership, investment stewardship, corporate engagement, sustainable investing, fintech, asset management References https://www.theguardian.com/us-news/2021/aug/02/us-wildfires-bootleg-fire-climate-change https://www.bbc.com/news/science-environment-57946155 Jean M. Twenge, Cooper McAllister, Thomas E. Joiner. (2021). Anxiety and depressive symptoms in U.S. Census Bureau assessments of adults: Trends from 2019 to fall 2020 across demographic groups, Journal of Anxiety Disorders, Volume 83, 102455, ISSN 0887-6185, https://doi.org/10.1016/j.janxdis.2021.102455. https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Risk/gx-investor-behavior-in-the-2021-proxy-season.pdf Global Sustainable Investment Review 2018, Global Sustainable Investment Alliance, 2018, gsi-alliance.org. https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum/ https://ssir.org/articles/entry/the_world_may_be_better_off_without_esg_investing?fbclid=IwAR2z9FDm3VnYTpexNVNDFG_pz09SMAkKF1Yby-kGD5WaPSH2dGJVvBwHHGA# https://www.pmi.com/media-center/press-releases/press-release-details/?newsId=22956 https://www.pmi.com/who-we-are/corporate-governance/board-of-directors Berg, Florian and Kölbel, Julian and Rigobon, Roberto, Aggregate Confusion: The Divergence of ESG Ratings (May 17, 2020). Available at SSRN: https://ssrn.com/abstract=3438533 or http://dx.doi.org/10.2139/ssrn.3438533 Malik VS, et al. (2010). Sugar-Sweetened Beverages, Obesity, Type 2 Diabetes Mellitus, and Cardiovascular Disease Risk. Circulation [Circulation], ISSN: 1524-4539, Vol. 121 (11), pp. 1356-64; Publisher: Lippincott Williams & Wilkins; PMID: 20308626, Database: MEDLINE Rachel K. Johnson et al. (2009). Dietary Sugars Intake and Cardiovascular Health: A Scientific Statement From the American Heart Association. Circulation. 120:1011–1020.

Interesting interview with our newest team member Rickard Nilsson, Director Strategy & Growth. Read about his new role and views of sustainable investments in the Nordic region! “To help increase efficiency, transparency and collaboration both within organisations and in the market, there is partly a clear need to further digitalise workstreams. Esgaia is fully committed to help with this technology infusion, and I really look forward to working with them to support investors globally and the industry,” Nilsson elaborates. Read the full article here.

Today we received the honorable prize Skapa Talang Stockholm Region from the foundation SKAPA for our work with Esgaia. Read more here.

The fintech startup, Esgaia, has launched its platform for sustainable investments and large institutional investors in Sweden, Norway and in the UK are already using it. Wellstreet fintech fund is now investing in the company. Sustainability has come to be one of the highest priorities for institutional investors. The majority of all financial products will focus on sustainability in 2022, and eight out of ten investors plan to invest solely in ESG products the same year[1]. ESG stands for Environmental, Social and Governance, and is referred to synonymously as sustainability in many cases. The fastest-growing strategy within ESG is active ownership, which is the use of ownership to influence a portfolio company's operations and behavior. Esgaia has built a platform to help investors consider and mitigate sustainability risks in portfolio companies. Esgaia lowers the barriers for active ownership through automated processes that enable easier collaboration and increased transparency between stakeholders. This allows more capital to drive change in companies that need to be restructured, which is a critical component to achieving global sustainable transformation. The company was founded by Anton Ljung, Frida Femling and Simon Kristiansson. Anton has a background in fund management and sustainable investments, Frida possesses expertise in computer engineering and has experience from previous entrepreneurial endeavors, and Simon specializes in IT architecture and web development. Esgaia has developed its platform together with some of the largest institutional investors in Sweden. Last year, the platform was in beta under the name “Acty”, and investors with more than €235 million in assets under management (AUM) have already signed up to the platform. Clients include Storebrand Asset Management and Länsförsäkringar, among others. The platform is now available globally, and to scale up and accelerate Esgaia's development, the venture capitalist, Wellstreet, has invested. Esgaia will be the first investment in Wellstreet Fintech Fund I. “It is inspiring to work with institutional investors who are leading the way in this area. With the right tools and strategies, they have tremendous potential to make a difference. We are delighted to have Wellstreet on board on this journey to become the market-leading active ownership platform,” says Anton Ljung, co-founder and CEO of Esgaia. “Like many others, I invest in funds for the short and long term. For me, it is important that the funds I invest in perform as well as possible without the trade-off of being sustainable. Here is where I see Esgaia doing something meaningful, which they have proven by establishing their platform with credible fund companies in a short period. Esgaia is built for the global market and I look forward to launching this platform internationally with the team,” says Armando Coppola, Partner and Fund Manager at Wellstreet. ### For more information, please contact: Anton Ljung, founder and CEO of Esgaia, +46 70 998 02 33, anton@esgaia.com Press images: Download high resolution images here https://bit.ly/3mrlFRP. Pictured: Founders Simon Kristiansson, Anton Ljung and Frida Femling. Photographer: Annika Derwinger Falkuggla. About Esgaia: Esgaia was founded in September 2020 and is a Swedish software company focused on simplifying the process of active ownership. Our team is passionate about ESG issues and we believe that sustainable investment practices are the key to growth, profitability and a better future. Our vision is to become the global standard for active ownership. [1] 2022 the growth opportunity of the century – PwC

The financial community’s ability to contribute towards the achievement of the goals of the 2015 Paris Agreement and the broader UN Sustainable Development Goals depends on the logistical capacity to chase these targets. Such a capacity relies on a range of specialised resources, not just trained ESG analysts, but also data feeds and related tools. One often neglected area, due to its inherently procedural nature, is engagement. Although some companies provide proxy voting services, the entire process of managing an asset manager’s engagement process is normally handled in ad-hoc ways, via in-house or generalised software tools. To address this gap in the market, Swedish company Esgaia (previously Acty) offers a specialised digital engagement solution. Read more at Nordsip

ESG megatrends such as climate change and the next normal, growing client and beneficiary expectations, and regulatory pressures have driven strong growth in the ESG research and data market over many years. Investors are now expected to integrate ESG into their investment decisions and be active responsible owners. However, while the volume and number of responsible investments continue to grow, regulators and market representatives are struggling to keep up with the quality. Investors and their stakeholders will benefit from a system that they can trust and that allows for easy comparability. The EU Action Plan, covering in part the Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR) provides two examples of major undertakings to improve such market dynamics. However, if we are to change the current unsustainable path we are on, everyone must do their part. Look under the hood We know that quality is not just the coating and design of a car, but as we start looking under the hood, we understand how complicated the technology is and how everything is connected. The same goes for responsible investments. Quality has as much to do with the people, processes and systems on which these strategies are built as it does with communicating that message through policies and disclosures and reporting on activities and progress. In this article, we will focus on active ownership and look at some best practices in investor responsibility, highlighting one area in particular where we see clear room for improvement. Stewardship as a tool for good One of the most important responsible investment strategies for investors is stewardship (also known as active ownership) which is the use of the rights and position of ownership to influence the activities or behavior of investee companies in which investments are made (1). The market increasingly recognizes this strategy as the most powerful tool to enable changes in corporate practices that have real-world impact. This in turn makes it one of the fastest-growing ESG strategies globally (2), which on the flip side also means that related investor practices are coming under increased scrutiny from stakeholders and regulators. Investors are expected to clearly communicate their active ownership capabilities, including strategy, process, resources and coverage. In addition to prioritizing engagement and voting and monitoring progress, many investors have prioritized human capital development and team accountability to build a solid foundation for their overall strategy. Collaboration through global investor initiatives and networks is also being used extensively, giving engagement dialog more influence and weight. The downside to this increased investor engagement is the risk of greenwashing, i.e. investors claiming to make a difference when their activities are far from responsible. Competing priorities The development and implementation of ESG strategies have led to major investments by investors in data, people (often in dedicated teams) and technology, sometimes followed by a significant shift in overall investment priorities. The continued evolution of investor practices means that they continue to invest in data intelligence and information, back- and front-end infrastructure, and reporting capabilities. In terms of active ownership, one area where investors are underspending is the engagement database to support it - the very infrastructure they use to enable dialog tracking and collaboration across individual, collaborative and outsourced engagements. In many cases, these dialogues, including compiling data and insights for reporting, are handled in simple spreadsheets, while larger, more sophisticated investors may have developed their own platform. However, the growing need for ESG-related IT development often competes with other investor priorities, such as regulatory compliance, pressure on margins and navigating increasingly complex markets. Using technology to build capacity Current market practice for engagement infrastructure is clearly patchy at best, very time-consuming and creates unnecessary complexity for investors. It would therefore be of clear benefit to drive these practices forward. The answer to this is technology - and this is where Esgaia can help you. By providing a SaaS platform to manage all these dialogues in one place, you will be able to simplify your workstream, improve collaboration and increase accountability. As a result, you'll save money and work more efficiently, while credibly expanding your reach and influence as a responsible, active steward of capital. Want a demo? Send us an email! [1] https://www.unpri.org/listed-equity/introduction-to-active-ownership-in-listed-equity-/2719.article [2] http://www.gsi-alliance.org/wp-content/uploads/2021/07/GSIR-2020.pdf

The Financial Reporting Council (FRC) recently introduced the updated UK Stewardship Code which sets high stewardship standards and expectations for those who invest on behalf of UK savers and pensioners. It consists of 12 Principles that asset managers and asset owners must report on to become a signatory. It does not prescribe a single approach on how to work with engagement, but rather to get organizations to increase their transparency on how they do it. FRC released the latest list of signatories in September 2021. Out of the 189 applicants, only two-thirds (125) made the cut. According to FRC, most of the organizations that did not fulfill the criteria of becoming a signatory relied too heavily on policy statements. As such, the code put a lot of importance on reporting, displaying activities and outcomes, and not just high-level policy commitments. Esgaia support investors' compliance with the UK Stewardship Code in multiple ways. Below, we outline key functionality that can help investors looking to become a or remain as 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 the Esgaia platform, signatories show they have invested in a system that enables a more structured approach to the engagement process. It helps improve efficiency, transparency and cooperation within investment organizations. Principle 7: Stewardship, investment, and ESG integration “The interaction between teams, including portfolio managers and ESG specialists, should be explained.” The UK Stewardship 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 - 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. Our platform enables effortless cooperation and information exchange between your relevant internal stakeholders. 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 UK Stewardship Code strive for transparency and reporting exemplified through case studies, activities and outcomes. Esgaia's platform automates engagement statistics across funds or mandates for investors' stakeholder reporting. For example, using the Esgaia platform you are able to record your milestone progress and results of engagements. When you conclude a dialogue, you can link it to specific outcomes. This helps you keep track of what has happened in the targeted companies after the engagements, and what actions and activities they performed. Figure: Example of engagement statistics to extract from Esgaia's platform. Moreover, by logging all their activities (phone calls, meetings, site visits, etc.) and contacts on the platform, investors can view activity levels and contact summaries on our Statistics dashboard. Figure: Example of engagement statistics to extract from Esgaia's platform. 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 exercise 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. To improve alignment between engagement and voting activity, it is possible to import voting data on the Esgaia platform. It enables a coherent overview and reporting of your active ownership activities, which can for example support investors' UK Stewardship reporting. Want a demo of the platform? Please send us an email! Sources: https://www.frc.org.uk/investors/uk-stewardship-code https://www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814a-d14e156a1d87/Stewardship-Code_Dec-19-Final-Corrected.pdf https://www.frc.org.uk/getattachment/975354b4-6056-43e7-aa1f-c76693e1c686/The-UK-Stewardship-Code-Review-of-Early-Reporting.pdf https://www.frc.org.uk/news/september-2021/frc-lists-successful-signatories-to-the-uk-steward

This is an article about common obstacles perceived by institutional investors practicing active ownership. It highlights the benefits of collaboration and presents minor activities to overcome the barriers and to build an active ownership strategy. Active ownership is herein defined as the use of shares to influence companies in which an investor has invested, and is also referred to as stewardship. The need Institutional investors are taking on the responsibility of investing their clients' money in sustainable companies to generate long-term value. Market trends show that there is a growing desire among these clients to better understand how their money is being invested. Clients want to know if their investments are sustainable in terms of Environmental, Social and Governance aspects (ESG). To meet this trend and satisfy demand, investors must take action to adjust their operating models. Investors have been hiring ESG analysts and sustainability experts and have provided relevant education to increase the level of knowledge in investment teams. This is an important shift, that needs to be encouraged. Strategies In Sweden alone, billions of dollars are invested in companies that do not commit to integrating ESG factors, have a high carbon emission footprint, and are not in line with the Paris Agreement. Investors have the option to exclude these companies from their investment strategy. Another option is to influence them by being active owners. The latter strategy is considered to be a more effective strategy than exclusion, and the goal is to influence a company to enhance and preserve the value of the investors’ investment. The goal is to change the corporate strategy or improve its sustainability performance. Barriers Esgaia has come across several organizations that are at the forefront of this and have a thorough integration of active ownership in their investment strategy. These organizations are sources of inspiration and define active ownership as a key tenet of sustainable investing. There are also a large number of institutional investors that are in the early stage of active ownership implementation and are currently seeking an approach to practice it. There also exist investors not yet exercising active ownership at all. They are usually experiencing cultural, regulatory and practical barriers to comply with their active ownership responsibilities. The main reason investors do not engage with their investee companies is that they believe the costs outweigh the investment benefits. It is time-consuming and often requires resources in form of ESG analysts, new employments and/or education. Costs are linked to a lack of knowledge and competence of active ownership, which is often the case for smaller investors. Another obstacle to active ownership is when the investor holds a smaller investment in a company, thus the investment is too small to influence the company. This is often due to portfolio diversification (to yield higher returns and to spread out the risks), but also because the investor is too small to gain financial power. Another obstacle to active ownership is free-riders. Being a market leader of active ownership presents a free-riding incentive. This means that other investors, from whom it is not worthwhile to engage in active ownership, benefit from the work of leading investors. All investors benefit from the dialogue, but the leading investors bear the cost of those free-riders. Develop a strategy to overcome the obstacles, and meet the need Establishing an approach to active ownership can be difficult, but smaller activities can be undertaken to overcome some of the barriers. The strategy should outline the general approach to active ownership, and a plan to overcome potential barriers. Investors holding smaller investments may have lower financial power compared to investors holding larger investments. To overcome this obstacle, collaboration with other investors can increase the success of the engagement for smaller shareholders. In this case, investors pool their capital in collaborative engagements to have a stronger voice. Collaboration can occur directly with other shareholders, or through investor initiatives where investors come together to target several companies on specific ESG-issues. Another benefit of collaboration is the sharing of costs, which is intended to reduce the barrier of costly engagements as an individual investor. When collaborating with other investors, it is important to take the responsibility that active ownership requires, in order to avoid becoming a free-rider. To be successful with collaborative engagements, all shareholders must have a clear and shared understanding of the targeted issue. There needs to be good coordination and clear milestones to work towards together. Collaborating with other investors can also increase knowledge sharing to some extent. However, overcoming the barrier of deficient knowledge and competence still requires resources. Acquiring knowledge in the field of active ownership is time-consuming, but it is easily accessible through several sources. UNPRI (1,2) is a great source of active ownership material and presents strategies and best practices for successful engagements . Esgaia guide investors that are at the initial phase of active ownership. We help investors to establish an approach to active ownership by providing a platform that facilitates work progress. Our mission is to become the standardized solution for active ownership and to increase the amount of work that is put on active ownership. We want capital to drive sustainable change. 1) https://www.unpri.org/listed-equity/active-ownership-practices-in-listed-equity-2017/6668.article 2) https://www.unpri.org/stewardship/active-ownership-20-the-evolution-stewardship-urgently-needs/5124.article

“Esgaia makes it easy to share engagement data and follow the progress within a collaboration” Sustainability is no competition. Collaborative shareholder engagement is an efficient way for investors to address and improve ESG-issues. When institutional investors come together and unify their voices, remarkable outcomes can be reached. We had the pleasure to talk with one of our users, Fredric Nyström. He is the Head of Responsible Investment at Öhman Fonder, a Swedish fund manager that has been operating in the investment market since 1906. What is your motivation behind collaborative shareholder engagements? It’s important to be humble about your influence, especially in companies where you are a minority owner. We are convinced collaboration with other investors makes us stronger and increases our chances to get our voices heard. Collaboration is a well-integrated cornerstone in our strategy on active ownership. How do you collaborate with other investors? The most common way for us to collaborate is through investor initiatives such as Climate Action 100+ and Investor alliance on human rights. In initiatives like these, investors come together to target several companies on specific ESG-topics. The responsibilities within an initiative are shared between the investors. We often have a leading role in one or two companies which implies that we are responsible for pursuing the initiative’s agenda against these companies. What are the keys to success with collaborative shareholder engagement? In my opinion, there are three important ingredients to succeed with a collaboration. To start with, it’s essential to have a clear and shared understanding of the issue or issues. Secondly, it’s important to set targets with KPIs. Thirdly, coordination. The more well-coordinated, the greater the success. How can Esgaia facilitate your collaborations? Esgaia is the platform where we manage and monitor all of our active ownership activities. Also, it’s possible to invite other investors to engagements we log on the platform. This makes it easy for us and the other investors, to share engagement data and follow the progress.