Robeco has been engaging with companies since 2005. While, as investors, we see the use of engagement, we didn’t know how companies perceive this. Earlier this year, VDBO (the Dutch investors association for sustainable development), Robeco and University of Amsterdam researched this topic, interviewing a number of companies on how they use engagement.
The research shows that shareholders influence companies in multiple ways, either directly or indirectly. By asking for specific changes to corporate reporting or sustainability policies, shareholders can have a direct impact, as a company’s decision to change is made in direct response to shareholders’ questions.
Shareholder engagements also influence companies indirectly. Employees who find the issues that shareholders have engaged on important use the engagement to ‘sell’ those issues within the organization. Often, this concerns employees of sustainability departments. Arguing that it is in the long-term interest of the organization to change particular practices, these ‘internal issue champions’ refer to shareholder’s questions to convince others within the organization of the importance of the issue. Specifically, they sell issues ‘up’ to gain commitments from top management and ‘sideways’ to convince other departments to dedicate resources to this issue.
Shareholders tend to undertake four types of activities. They suggest specific amendments to policies, challenge particular points of view of the board, inform corporations of novel developments and support internal issue champions. Usually, organizations change due to a combination of these activities. In this article we will give three examples of how our engagements have motivated companies to change their policies or practices.
In 2013-2015, Robeco engaged with a British real estate investment trust (REIT). In 2014 and 2015, Robeco repeatedly suggested to develop interim yearly targets for the companies’ energy consumption and carbon reduction figures. The head of Corporate Social Responsibility (CSR) explained that she had already considered that option, and that the engagement served as a confirmation that it was in fact a good idea.
The CSR manager furthermore explained that she had used the engagements to motivate employees internally. Her department would use the argument that the owners of the corporation were asking for particular information to motivate other departments to record the necessary data on how the company was performing on different targets. They also explained to these people that “environmental, social, governance and sustainability is about our license to operate, is about managing risk, is about all sorts of things that are very pertinent to the investors.”
The engagement also served as a means to learn about which issues would become more important in the near future. Relatedly, the CSR manager used the engagement to learn about issues that she considered to be growing in importance. At the time she was particularly interested in integrated reporting, and the engagement with Robeco was an opportunity for her to learn more about what integrated reporting entailed and how her company could improve its disclosure practices.
Together with Eumedion, Robeco asked a large manufacturing company to put a target on renewable energy usage. Prior to Robeco’s engagement, top management had already taken a favorable stance on the issue, and appointed an issue champion to the project. The engagement helped this employee to gain commitment from subsidiaries to the project, and get the necessary research done to establish the actual target.
The corporation had been in the process of developing a target on sustainable energy usage for some years. In order to set this target, the energy usage of each subsidiary had to be mapped, and research had to be done on which renewable alternatives were available locally. As such, support from the controller of every business unit was needed. For these other employees, the issue did not have a high priority. However, when external developments, including our engagement, made the issue more urgent, the person responsible for the research behind the target used this to convince others in the organization to work on this project.
In 2015 and 2016, Robeco engaged with a Dutch stock-listed company on integrated reporting, i.e. combining financial and sustainability information into one report. While this corporation already had quite an advanced integrated report, Robeco’s engagement challenged the corporation to take the next step and maintain its position as a frontrunner.
The engagement influenced the corporation by simultaneously challenging the board, and supporting the Sustainability Reporting Manager. In early 2015, Robeco sent the questions it intended to ask at the AGM to the company secretary. The company secretary discussed them with the Sustainability Reporting Manager, and wrote the formal answers to them. The questions with official answers were subsequently included in the Q&A section of the AGM folder, which was given to the executive board in preparation of the AGM. As such, the board became aware of Robeco’s questions on the topic. Next, a member of the executive committee attended a private meeting with the shareholder, in which the topic of integrated reporting was discussed again.
The corporation did not commit to improvements to its integrated report at that moment. This did not happen until the Sustainability Reporting Manager, who had already helped with the formulation of answers to Robeco’s questions, submitted his plan for the subsequent integrated report to the board for approval. This manager referred to questions of external parties, such as Robeco, to sell this proposal to the board.
This shows that even when a company is considered to be a frontrunner in sustainability, engagements can help the company take the next step and maintain its leading position.
Source: White paper VBDO, Advancing shareholder engagement, September 2016
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商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号
加入協会： 一般社団法人 日本投資顧問業協会