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Collaboration details

Asset owners and investment managers agree that engagement is a powerful lever for driving companies forward in environmental, social and governance (ESG) areas and steering them towards a sustainable transition. However, the practice of ESG engagement, which has become widespread globally over the last decade, now faces two major challenges that limit its impact: the lack of a consensus definition of ESG engagement, which makes it difficult for asset owners to assess this practice and the quality of engagements; the difficulty in measuring its influence on the engaged companies, which makes it challenging for investors to demonstrate the added value of their engagement work. This can lead to sub-optimal allocation of resources to engagement activities by investors, thereby reducing the impact of engagement.

This report addresses this dual challenge. It brings together academic and professional expertise in the field of ESG engagement to propose a definition, an analytical framework and an engagement toolkit, in order to clarify the accounting of ESG engagements, assess the influence of an engagement and provide empirical evidence of that infleunce, report on ESG engagement practices and identify and mobilise the resources necessary for those practices.

This report centers asset owners. The working group has focused its work according to the needs of these ‘principals’ in the investment chain. The scope of study includes: listed markets (equities and bonds, excluding, at this stage, private equity, private debt, sovereign debt and infrastructure); active and passive management ; individual and collaborative engagement; engagement with companies, effectively excluding public policy; engagement actions aimed at influencing companies, disregarding for the purposes of analysis any dialogues whose objective is the collection of information without looking for influence on the company; Corporate engagement, excluding sector or thematic engagement; engagement aimed at influencing a company on ESG issues, i.e. distinct from purely financial matters such as EBITDA, debt, ROI and cash flow, even though ESG engagement may result in the creation of financial value.

Objectives

The first objective of this work is to propose an enhanced definition and a framework for analysing engagement. The second objective is to develop a set of tools to: clarify the accounting treatment of ESG engagements ; assess the influence of engagement and provide empirical evidence of this influence ; report on ESG engagement practices ; identify and mobilise the necessary resources. Finally, this report aims to facilitate: the comparability of investment managers’ engagement capacity for selection and appointment by asset owners, using a fair comparison method that takes into account both the volume and quality of engagements carried out; where applicable, it may also be used by asset owners in connection with their direct investments ; standardisation of reporting by management companies, funds and mandates; the use of a shared engagement analysis framework among asset owners and investment managers, established at the initiative of the latter, which can be used in calls for tenders, due diligence processes and, more broadly, in the monitoring of engagement and reports ; the promotion of a common framework and tools at a European level and, if possible, on a global scale.