Shareholder engagement is a cornerstone of sustainable investment strategies. As capital providers, investment companies enjoy a privileged status that enables them to initiate a dialogue with companies, as well as the right to vote at the shareholders' meetings of invested companies. This enables them to defend environmental, social and governance considerations in companies' operational decision-making. This commitment is naturally put forward by management companies to justify their involvement in ESG issues.
However, if the commitment does not represent a genuine part of a company's ESG strategy, highlighting it may entail a risk of greenwashing.
In June 2023, WeeFin published the sustainable finance barometer taking stock of asset managers' ESG & impact practices, based on a panel of 50 Article 8 and 9 funds as defined by SFDR.
At the time, we noted that 14% of asset management companies did not publish sufficiently precise information on their engagement practices.
In 2024, we extended the scope of our review to 75 funds and carried out new, more granular analyses to assess both the commitments made by players in terms of voting and dialogue and their results through published reports.
The analysis was based in particular on the criteria developed by the new SRI label guidelines on shareholder engagement. This latest version encourages the publication of a formalized and transparent process specifying all the terms and conditions of asset managers' voting and engagement activities. A very high level of detail is required: good practice in this area is to communicate the scope covered by voting and engagement, the voting rules applied, the triggers for dialogue, the escalation procedure, as well as details of the results of these policies.
Thus, in 2024, we noted :
This observation is based on a paradox: although shareholder engagement is very popular among financial players, it can be difficult for them to muster the expertise and resources needed to develop and implement an engagement policy that matches their ambitions.
Indeed, building and delivering a comprehensive engagement process requires in-depth knowledge of the issues to be addressed for each economic sector, geography, or type of player. It also means devoting time and manpower to supporting the companies involved. Over and above these essential human resources, effective implementation of a commitment policy requires the mobilization of significant technical resources, particularly with regard to ESG data, which remains a major challenge in the development of responsible finance. ESG data makes it possible to identify the players to be engaged and to monitor their practices throughout the engagement period. Access to this data is therefore an essential first step in implementing a commitment policy. It is also essential to be able to link this data with the results of the engagement, but also with controversies, the exclusion policy, and all the components of a management company's responsible investment policy, such as the ESG score, for example.
For all these reasons, the promotion of shareholder engagement can give rise to significant reputational risk, and players in the marketplace are therefore encouraged to refine and strengthen their practices. Smaller players, in particular, are heavily penalized and find it more difficult to make their voice heard, due to their smaller workforce and lower shareholding levels.
Thanks to our ESG Connect platform, we support financial players through all these stages, helping them to align their investment practices and strategies with their convictions.
