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Engagement is More Than “Criticising Companies” – Schroders  

The UK-based asset manager is conducting a series of research papers to help it measure its engagement.  

There is a risk that good engagement is viewed as “how harsh or tough” you can treat a company, Kimberley Lewis, Head of Active Ownership at Schroders has said following a new report on improving engagement on ESG issues.  

The UK-based asset manager is conducting an ongoing series of research to help it measure its engagement effectiveness, Lewis told ESG Investor. It first looked at whether there is a correlation between engagement on governance issues and financial return. Lewis said research is planned on the impact or correlation of its engagement on companies’ climate policies and transition plans.  

“The series will look at how we can measure our engagement in different ways. The Stewardship Code says a measure of your engagement quality is case studies. That is one way. But there is so much engagement that happens that we want to keep confidential or doesn’t make it into a case study, so we wanted to look at other ways of measuring the impact,” she said. 

More than voting     

Lewis added that lately there had been a lot of scrutiny on how investors voted at company annual general meetings and ranking them on how they voted. “We really believe that this only tells a very small percentage of the overall story amongst all sorts of different indicators to see if we’re being effective in stewardship,” she said. 

Organisations such as UK-based NGO ShareAction do annual reports ranking how asset managers vote on ESG issues. Schroders ranked 21 out of 68 in ShareAction’s 2022 Voting Matters report.  

She also said, particularly in the UK, judgement of what was good engagement risked being “how tough can you be against companies or how much can you criticise them and how much can you escalate”.  

“Now, it is really important that we hold companies to account. That’s our core. But we also realised that two-way dialogue is important. Asking companies themselves about the impact of engagement is rarely done. And that’s why we decided to take it on,” she said.  

UK shareholders influential   

Schroders’ research involved a survey of more than 350 investee companies from 45 countries. It found lacking coordination within investor organisations was the biggest barrier to effective investor engagement (27%), followed by confidentiality (21%) and irrelevant topics/lack of materiality (20%).
Additionally, when asked an open-ended question on barriers to or opportunities for effective investor engagement, 29% of respondents pointed to ESG disclosure and third-party data, and many expressed concern about the automation of ESG data collection and processing.  

Overall firms said customers (55%) are the most influential force when it comes to encouraging business to take action on material ESG issues, followed by the investment community as a whole (39%) and political will/government policy (38%). 

However, in the UK, top shareholders are very important (42%) and significantly more influential than the investment community (28%) in contrast to other regions. 

Lewis said this likely reflected an inherent regional bias where UK investors tended to be influential at UK companies, if not the top investor. She added that in feedback on its engagement, particularly with US companies, sustainability leadership was seen as originating in the UK, and also Europe.  

The research also found that Schroders was rated as more effectual and constructive than other investors in one-to-one company engagement.  

Anecdotally, Lewis said companies preferred ESG engagement done jointly between investment desks and the ESG team. “One of things we heard loud and clear from conversations is that with other firms, ESG engagement involved very different conversations from that of the investment desks. And at some point, contradictory. We fully appreciate the tension that can exist between an ESG team and an investment team, which is why we do spend a lot of time being really integrated and flushing through our expectations together. It’s really important that we present one view.”  

She added that unlike other competitors it also didn’t split its vote at company AGMs. “We believe it dilutes the effectiveness of engagement,” she said. “And can confuse a company.”  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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