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October 04, 2013

The State of Shareowner Engagement in Europe
    by Robert Kropp

Eurosif reports on investor engagement with corporations in Europe and finds that engagement on environmental, social, and corporate governance issues is steadily increasing.

SocialFunds.com -- In a 2009 paper outlining the differences in approaches to shareowner engagement in the UK and US, James Gifford, Executive Director of the United Nations' Principles for Responsible Investment (PRI), wrote, "There is a cultural difference between the US and the UK on the issue of filing shareholder resolutions, with this tool being much more common in the US due to weaker shareholder rights leaving shareholders with fewer options, as well as a more confrontational corporate culture."

It may well be that conditions have changed somewhat since Gifford wrote those words—for the past two years at least, members of the Interfaith Center on Corporate Responsibility (ICCR) have prioritized corporate dialogues while continuing to file shareowner resolutions—but, as a recently published report from Eurosif reveals, the filing of resolutions remains a relatively low priority for sustainable institutional investors in Europe.

The report, entitled Shareholder Stewardship: European ESG Engagement Practice 2013, states,
“While these proposals are a common vehicle for change in the United States, accounting for several thousand proposals each year, there are typically less than 10 of these each year in Europe.”

“The differences are mainly cultural and historical,” the report continues. “European investors vote shares, but the main vehicle for change is private engagement rather than proposing a shareholder resolution on an ESG issue. In the US, the mere filing of a shareholder resolution can actually be a vehicle for successful engagement, as many proposals are withdrawn before the vote because companies respond to investor demands.”

The report defines environmental, social, and corporate governance (ESG) engagement as “a responsible investment strategy that is often used for the purpose of achieving incremental advances in sustainability reporting or ESG performance of companies.”

According to Eurosif, the most frequently utilized engagement strategies in Europe (besides the voting of shares, which slightly over half of industry participants practice), are private dialogues and collaborative engagement. Collaborative engagement “involves working with other investors on an informal basis, or on collaborative platforms,” the report states. “By being supported by a higher proportion of company share capital, the likelihood of success of engagement is improved.”

Additional highlights from the report include:
Assets subject to an ESG engagement policy have been steadily growing for the past ten years, reaching almost $2.7 trillion in 2011; and
slightly more than one-third of industry participants surveyed report having investment policies that include ESG integration, while over two-thirds of those who engage with corporations on ESG issues have such a policy in place.

The report also calls for improved integration of ESG issues into corporate and investment decision making through mandating strong ESG disclosure from companies and requiring the disclosure of engagement and voting policies and practices from investors.

“Active engagement has the potential to deliver value by generating profits, reducing risks and negative ESG externalities, encouraging better business practices, changing ethical behavior and improving reputations,” the report concludes.

“The report highlights the benefits of being an engaged investor, in particular around environmental, social and governance issues,” Francois Passant, Executive Director of Eurosif, said. “It clearly demonstrates the potential of engagement to create value in the long term and be an agent of positive change.”

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