Navigating engagement challenges: Effective escalation for asset managers

The recent findings from ShareAction’s Responsible Investment Standards and Expectations (RISE) series have raised concerns regarding the effectiveness of escalation strategies used by asset managers. The study, which involved scrutinising the stewardship and sustainability reports of 50 of the world’s largest asset managers, revealed a worrying trend: limited disclosure on the use and outcomes of escalation in engagement with investee companies. This calls into question the current practices and highlights the need for a standardised framework to enhance engagement practices.

The importance of escalation in engagement

Escalation in engagement plays a vital role in the relationship between asset managers and investee companies. When initial engagement efforts do not yield the desired results, escalation serves as a crucial tool to signal the seriousness of investor concerns. Furthermore, without effective escalation strategies, firms may perceive a lack of consequences for failing to respond appropriately to investor issues, leading to stagnation in responsible investment practices.

Current trends in asset management engagement

Recent research from Redington indicates another area of concern in the asset management industry: a halt in hiring for engagement and stewardship roles, coupled with a stall in engagement progress. Approximately 30% of companies show no evidence of ESG factors driving specific changes. In addition, the UK’s Financial Conduct Authority has highlighted that stewardship activities are not aligning with sustainability guiding principles, failing to meet expectations.

The proposal for a standardised escalation framework

To address these issues, ShareAction proposes a standardised framework for escalation. This framework aims to achieve several objectives:

• Enable clients and stakeholders to assess and compare practices.
• Guide companies on strategic decisions: Companies will gain insight into how their choices impact their relationship with investors and access to capital.
• Facilitate collaboration among investors and stakeholders: A standardised approach will help identify overlapping goals and common purposes among different stakeholders.
• Inspire other asset managers: This framework can encourage asset managers to adopt more ambitious and consistent escalation practices, ultimately benefiting both people and the planet.

SI Engage enhances engagement strategies

In light of these findings and proposals, the role of platforms like SI Engage becomes increasingly crucial. SI Engage offers advanced tracking and reporting features that enable users to prioritise and identify key escalation points. By facilitating timely action on critical issues, SI Engage plays a pivotal role in enhancing the effectiveness of engagement strategies.

For asset managers interested in improving their engagement strategies and contributing to a more sustainable and responsible investment landscape, we encourage you to explore SI Engage. Get in touch for a free demo and discover how it can transform your approach to investment engagement.