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Eurosif report calls for better ESG engagement

Eurosif release a report that highlights benefits of better shareholder engagement over ESG policies

A new report has called for greater engagement between companies and their shareholders, insisting that better dialogue will lead to increased profits, reduced risk and improved reputations.

Announced in late September, the report was conducted by the European Sustainable Investment Forum (Eurosif), a pan-European network of consultancies and think tanks specialising in improving sustainability in business. Entitled ‘Shareholder Stewardship: European ESG Engagement Practice 2013”, the study looked at how companies can engage with their shareholders, presenting them with a clearer understanding of the business’ ESG polices.

“The ownership of European and global companies is now overwhelmingly held by institutional shareholders. The global financial crisis and recent corporate controversies have highlighted the perils of passive ownership,” said Eurosif’s Executive Director Francois Passant in a statement.

Instead of taking such a passive role, companies should look at five areas of ESG. These include “…defining a policy, selecting targets, developing achievable objectives, evaluating outcomes, as well as measuring impacts/values and communicating these to shareholders.”

“While taking stock of recent market practices, the report highlights the benefits of being an engaged investor, in particular around environmental, social and governance issues. It clearly demonstrates the potential of engagement to create value in the long term and be an agent of positive change,” added Passant.

The report also reveals that in Europe, assets that come under ESG engagement policy have been growing during the last decade and were worth €2trn in 2011. Companies also preferred to engage privately with individual shareholders. However, there is a growing trend of collaborative engagement, where groups of shareholders come together to discuss ways in which costs can be brought down.

Although much of what the report calls for is down to boards and shareholders, it also says that European policymakers can do more to help foster a culture of engagement between the two. Eurosif says EU legislators should create rules to encourage companies to offer fuller disclosure of its ESG policies, while also removing technical barriers “such as share-blocking and allowing for investor identification”.

ESG integration is the practice of asset managers disclosing full risks and opportunities in their financial analysis and investment decisions. It is something that many global regulators have called for, including the UN-backed Principles for Responsible Investment (PRI) group. In February, PRI released their own ‘Integrated Analysis’ report, which showed how ESG principles could be fully integrated into the valuation processes of investment managers.

James Gifford, executive director of the PRI Initiative, said in the report, “Assets owners’ belief and expectations about how ESG issues should be managed and disclosed to best contribute to portfolio returns vary across asset classes and over time. The incentives and behaviour of investment managers are often not fully in line with these. Ensuring these interests are better aligned is a fundamental requirement for the delivery of a sustainable financial system, and is central to the mission of PRI.”

 

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