Investors engaging directly with companies to drive sustainability 

Shareholder resolutions are less effective than private engagement in moving ESG up the corporate agenda, finds research
Investors are choosing to engage actively with investee companies on sustainability and governance issues to drive sustainable corporate practices, concludes a report by the University of Cambridge Institute for Sustainability Leadership and law firm DLA Piper.

Asset managers increased environmental, social and governance-labelled engagements with companies and boards by 39 per cent between 2020 and 2023, finds the research based on data from more than 100 companies, asset managers and industry experts.

Indeed, it concludes that private engagement — direct, confidential dialogues between investors and company leadership — is more effective in encouraging corporate transparency and sustainable decision-making than public measures such as shareholder resolutions.

Shareholder resolutions have “limited impact”, with only 6 per cent of environmental and social proposals being “successful”, the report argues.

Regulatory changes and recognition of ESG risks are driving this increase in active stewardship, it says.

“Asset managers must collaborate effectively with boards to ensure they use their stewardship influence strategically to achieve sustainable outcomes,” says Gillian Secrett, Future of Boards research director at the CISL, in a statement. “Responsible boards should not rely on voting results as the catalyst for action, and instead proactively integrate sustainability risks and opportunities into their core strategies and business models.”

The report is part of a study on the Future of Boards, which also includes a second study exploring challenges that company board members face when applying sustainability data to strategy and decision-making.

It finds that boards are adopting a “box-ticking” mentality to how they collect sustainability data, with businesses collecting data to comply with legislation, or to meet the needs of stakeholders such as clients, shareholders or other finance providers.

The report urges board members not to “reluctantly comply” with sustainability-related reporting legislation, but to see it as a “useful tool” to better understand sustainability impacts, risks and opportunities.

CISL and DLA Piper have developed a series of questions boards should ask themselves to implement the reports’ insights.