To deal effectively with the SRI community, companies need to understand the SRI strategy of ‘constructive engagement’.
Simply defined, ‘constructive engagement’ is a strategy though which investors encourage company management to improve the impact that they have on society and / or the environment through a process of research and dialogue.
In practice, however, engagement ranges across a wide spectrum from:
- Engagement for research and integration – where analysts seek further disclosure from companies for the purpose of making better investment decisions, to
- Engagement campaigning – where the primary purpose of the engagement is a change in corporate behaviour and the investment rationale is secondary
While the former has a clear investment purpose, the latter can become disconnected from the fundamental investment rationale. Although this is regarded as extremely bad practice within SRI, it is all too prevalent.
In recent years, the practice of ‘engagement’ has been given wings by the UN Principles for Responsible Investment which facilitates collaborative engagements on ESG topics, including for example Climate Action 100+
