That raises a question for stewardship. Engaging with individual companies remains important, but companies cannot solve systemic problems alone. Governments set many of the rules of the game, from taxation and regulation, to public investment. So, if investors want to address risks that affect the whole system, can they afford not to engage with governments too?

However, sovereign engagement quickly raises some uncomfortable questions: with whom do you engage, what is our role as investors, and can investors realistically drive change?

So, where should investors actually start? Follow the money, and the answer may be close to home. For many European investors, countries such as Germany or France account for a significant share of sovereign bond portfolios, giving investors a clear reason to engage. But that addresses the transition risks facing individual countries, rather than climate change as a global challenge.

Follow the emissions, and the picture looks very different. On climate change, attention quickly shifts toward China and the US, the world’s largest emitters. The catch? The countries that matter most may be precisely those where investors have the least influence. That makes access an equally important consideration. However, if investors simply go where the door is open, they risk choosing the easiest conversations, rather than the most consequential ones.

The dilemma is clear. Should sovereign engagement follow where your money is, where the stakes are highest, or where you have the greatest chance of making a difference?

Choosing the right door is one thing. But what gives investors the right to knock? Investors are not elected policymakers, and sovereign engagement should not become an exercise in telling governments how to run their countries. Yet, governments make decisions that shape markets, and the long-term risks investors are exposed to. Simply saying “this is politics” and staying out of the conversation is not necessarily neutral either.

The role of investors may be limited, but it can still be meaningful: ask uncomfortable questions, explain how policy choices affect capital, and bring a long-term investment perspective to debates often dominated by shorter-term pressures. The dilemma is how to strike the right balance, by contributing to the debate, without pretending to be the policymaker.

Even then, another difficult question remains: what counts as success? A government changing policy following an engagement would make for a great case study. But how often can an investor honestly claim it caused that change?

Success may therefore be less spectacular. Putting an issue on the agenda, opening a dialogue that did not exist before, bringing new evidence to the debate, or seeing investor concerns reflected in subsequent discussions, would all count as wins. Set the bar at changing government policy, and most engagements will fail. Count every constructive conversation as success, and the bar becomes meaningless.

The dilemma lies somewhere in between – showing that engagement made a credible contribution to change without pretending that investors caused it.

The Netherlands offers a recent example. In October, the Dutch government announced plans to invest up to USD 500 million in the Tropical Forest Forever Facility (TFFF), explicitly citing interest from domestic institutional investors.¹ Ahead of the decision, Robeco had convened a TFFF investor meeting at our Rotterdam office, resulting in the Rotterdam Statement of Support for the sovereign investment.

We cannot claim that this caused the decision. But perhaps that is precisely the point: successful engagement does not require investors to take the credit; only to show that they credibly contributed to moving the debate forward.

So, with whom should investors engage, what is their legitimate role, and when can they claim success? We do not have perfect answers, and perhaps investors should be wary of anyone who claims that they do. But these questions are difficult to answer from the sidelines.

We have been engaging with governments on climate change for some time, including Australia and Canada, and more recently, the Netherlands.² These engagements allow us to test these questions in practice to find where engagement can add value, what meaningful progress looks like and where the limits of investor influence lie. Systemic stewardship may still be finding its feet, but that is an argument for learning by doing, not for doing nothing.

Footnotes

¹ Nederland investeert fors in bescherming tropische bossen | Rijksoverheid.nl
² Robeco focuses its engagement efforts based on an analysis of financial materiality. Robeco selects three to five new engagement themes every year, and for any given engagement theme, a number of companies are selected that have the most exposure to the engagement topic. These companies are not necessarily part of this portfolio and the impact of engagement is limited on fund level. Information with regard to Robeco’s Stewardship approach and guidelines can be found at docu-stewardship-approach-and-guidelines.pdf.