As millennials continue to drive more interest in responsible investing, what used to be a niche investment style has become increasingly more mainstream.
Shareholder engagement is not a new activity. Investors have been looking to engagement as one of the tools at their disposal to fulfill their fiduciary duties for decades. Today’s investors see it as an even more powerful tool—one that can have a direct impact on corporate behaviors and business activities, and therefore, general society.
pale, male, and stale," and not representative of the larger population. Over the past several years, investors have become increasingly more vocal about their expectations to see more women on boards. Some have put forward shareholder proposals, but most of the initiatives have involved letter-writing campaigns and direct engagements with board members behind closed doors. We are still far from seeing gender equality in the boardroom, but the fact that the average number of S&P 500® female directors has risen from 17% in 2012 to more than 27% today shows much progress. "
Both examples show the potential power of shareholder engagement through taking initiative and being persistent. The possibility of having a positive influence on a company or society gives responsible investors incentive to make shareholder engagement a portfolio priority.
Why is shareholder engagement picking up steam? Think impact!
Investors have been clamoring for more impact investing opportunities—strategies that not only provide returns but also have an eye to impart positive influence on society or the environment. How to go about achieving both of these goals is up to the investor.
Impact investing means different things in various asset classes. A fixed income investor might invest in a renewable energy project while a private equity investor might allocate capital to a startup that’s finding ways to improve health outcomes or increase energy efficiency.
In the public equity space, impact investors strive to invest in companies to help them do the right thing by their various constituents—such as their clients, employees, and communities—while generating long-term sustainable returns. However, portfolio construction is unlikely to have a large effect on company conduct or activity. Additionally, public equity markets are mostly secondary markets where investors buy and sell stocks they already own, which means the company doesn’t directly see the impact of the transaction.
If you’re a public equities investor who’s interested in both company share performance and company behavior—and you’re in search of a leverage tool that may nudge your corporate investments in a positive direction—active ownership in the form of shareholder engagement might be your best bet.
Today, we are at a tipping point where more investors are either taking action themselves or asking their asset managers to step up to the plate to take a more proactive approach in their engagement activities with companies.
The bottom line
As more investors demand to understand how their investing activities impact communities, it’s become evident that the most effective way to have impact in the public equity markets is through shareholder engagement. With the increased appreciation for the power of shareholder engagement, we can expect 2020 to be full of examples of emboldened investors finding their voice.