ESG Engagement

As an investor client, you decide which of the following approaches to reactive and proactive ESG Engagement best suits your investment strategy:

Norm-based Controversy Engagement

On top of legal compliance, companies are expected by investors, employees, and other stakeholders to conduct their business with due care and in a responsible manner. Involvement in ESG-related controversies, such as environmental pollution, poor work health and safety and bribery, indicate inadequate ESG management.

If not addressed properly, companies could potentially suffer from loss of business, loss of man-hours, penalties imposed by regulatory bodies, reputational damage etc. This could hinder not only their short-term performance but also long-term growth. In addition, controversies can have very severe negative impact on human beings, local communities, and the environment.

Hence, the ESG starting point for many investors, not least in the Nordic countries, is to “reactively” identify portfolio companies that have been violating international norms covered by the UN Global Compact’s 10 principles on ESG.

The engagement goal for Norm-based Controversy Engagements would be to resolve the concerned ESG incidents in terms of recognition and commitment, cease of impact, remediation, preventive action, and third-party verification.

We recommend investor clients to supplement the reactive focus by a proactive engagement on the company’s management of the most relevant ESG issues – or a holistic engagement on the 10 most material ESG issues. The goal is to enable continual improvement in sustainability performance and prevent future violations.

Engagement International does not engage with producers of weapons, tobacco, alcohol, gambling, and companies with other controversial business activities, as we don’t expect positive engagement results.

Materiality-based Engagement

A proactive approach to ESG Engagement is to identify and influence portfolio companies with a large gap between a high-risk exposure and a low management level regarding the most material ESG issues. These companies could be identified from the MSCI ESG Research database by their lowest possible ESG rating, CCC.

The engagement goal for Materiality-based Engagement would be to influence the controversial portfolio companies to improve their management of the critical ESG issues, and the general sustainability and corporate governance set-up.

Bespoke Human Rights Engagement

Investor clients can flexibly suggest that we engage on their behalf with selected portfolio companies, which are identified by third-party ESG research providers and civil organizations such as the Investor Alliance for Human Rights.

Together with the investor client, we will agree on the engagement goal and start engaging using our solid and proven engagement process and methodology bi-annually. We often recommend following the UN Guiding Principles on Business and Human Rights framework to strengthen the engagement process.

Engagement with Non-listed Companies

As a point of departure, Engagement International provides assessment and engagement with listed companies covered by the MSCI ACWI IMI investment index. These nearly 10,000 companies represent more than 90% of the market value of all listed companies worldwide.

Although we are not systematically covering listed or private equity companies outside this standard universe, we can facilitate engagement with a limited number of these companies, selected by investor clients, using our standard engagement processes and methodologies.  

The engagement goals and guidelines would be similar to the abovementioned for listed companies.

Norms and guidelines
Client Benefits

Mitigate business and investment risks associated with ESG controversies.

Obtain independent engagement insight and overview of company progress in detailed company and portfolio reports, to inform investment decisions and exercise oversight on asset managers.

Improve portfolio companies’ ESG and UN SDG management by joining other institutional investors represented in dialogues led by Engagement International.

Participate in customised engagements answering individual needs, interests and scope.

Access to the world-class ESG data provided by MSCI ESG Research, which forms the basis of our ESG due diligence process.

If you’re interested in receiving sample reports or learn more, click here to get in touch with us.
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