Our Investment Beliefs
‘Responsible investment is an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns’.
This definition by the PRI is the point of departure for the engagement we are conducting on behalf of our clients. More than 1,800 institutional investors have signed the six UN Principles for Responsible Investment and integrated these into their investment decisions and strategies. It can be done in many ways.
Engagement (or active ownership) is one of the main tracks responsible investors can follow with the largest long-term financial value creation and the least disruptive changes to the existing investment set-up.
We define Engagement as investor efforts to encourage companies they invest in to become more responsible in managing their most material environmental, social and corporate governance (ESG) issues.
Successful engagement with portfolio companies improves their management of the most material ESG issues and thereby tends to reduce risk and the financial risk premium, with all other things being equal. The following positive effect to financial return is documented in several empirical studies (e.g. MSCI alpha study).
Engagement is also the most direct way for responsible investors to show active ownership as part of their fiduciary duty to clients and beneficiaries. Active ownership is required by hard or soft law in still more countries, and it tends to be a pre-condition to achieving licence to operate from stakeholders and the general public.
Engagement can be conducted by asset owners themselves, through individual investment managers and networks, or in collaboration with asset owners and asset managers through specialised engagement providers such as Engagement International. The main benefits of collaborative engagement are the economies of scale and the enhancement of the potential influence by coordinating company dialogues.
Engagement is often an alternative to divestment, for example, of fossil fuel companies. While excluding producers of coal, oil and gas can be a clear public demonstration of activeness, the climate changes will not be reduced by selling shares to other less responsible investors. Our belief is that a better way for our society and the involved investors is to encourage energy companies to conduct a more responsible behaviour through an active engagement dialogue. However, engagement can be combined with divestment of selected companies where there is no hope for improvements.