From Passive to Active: Why engagement is the future of responsible investing

Investors have long been concerned about the social and environmental impact of their investments. However, until recently, the approach to responsible investing was passive – avoiding investment in companies that were deemed unethical or harmful. Today, however, there is a growing trend towards active engagement – dialogue – between investors and companies.

In recent years, this trend has gained momentum, with more and more investors seeking to engage companies on key issues, such as climate change, diversity and inclusion, human rights, and corporate governance. The reasons for this shift are clear – by actively engaging with companies, investors can influence their practices and policies and drive positive change.

Divestment: a last resort

In many ways, this approach represents a more proactive and constructive journey to responsible investing. Rather than simply divesting from companies that fail to meet ethical standards, investors are actively working to improve these companies’ performance and create positive change.

At the heart of this shift towards active engagement is a recognition that investors have a responsibility to use their influence and resources for the greater good. By engaging with companies and demanding more responsible practices, investors can help to create a more sustainable and equitable future for all.

Of course, active engagement is not without its challenges. It requires investment of time and resources, and it can be difficult to achieve meaningful change. However, for investors who are committed to responsible investing, the benefits are clear.

Engagement can help to drive improvements in the social and environmental performance of companies, helping to reduce risk and enhance long-term returns. This study determines just that – engagement on ESG issues benefits shareholders by reducing firms’ downside risks. It can also help to create more resilient and sustainable markets, benefiting both investors and society as a whole.

Quality over quantity

But investor stewardship must be more than just a superficial effort – true success requires thoughtful and comprehensive investment in resourcing, processes, personnel, and systems. Impact and sustainability teams, fund management teams, risk management teams and ESG/Stewardship/Governance teams must all play a part in this complex sustainability puzzle. Investment stewardship priorities should be subject to constant review, as well as whether all parties involved are coordinated and collaborating well, are appropriately trained, ensuring appropriate escalation processes are in place should target progress stall. 

In summary, while passive approaches to responsible investing still have a role to play, it is clear that active engagement is the future of responsible investing. Operating performance, profitability, efficiency, shareholding, and governance have all been shown to improve, while investors help to build a more sustainable, equitable, and prosperous future for all.

SIEngage accelerates the impact of investment organisations by streamlining engagement with portfolio companies. With our advanced system, investors and portfolio companies can leverage real-time dialogue that is easily tracked for progress assessment. 

Our services simplify data management tasks while reducing costs and maximising efficiency in reporting – giving you a comprehensive solution to your communication needs. Get connected today to discover how we empower collaboration between stakeholders through structured systems!

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