First Sentier MUFG Sustainable Investment Institute research uncovers keys to successful shareholder engagements

NEW YORK, Sept. 26, 2023 /PRNewswire/ — According to a new report on company engagement1 commissioned by the First Sentier MUFG Sustainable Investment Institute (the Institute), relevance to the company, face-to-face meetings, and a strong shareholder consensus are among the most important elements.

Based on a survey conducted by PwC with 100 senior corporate directors and CEOs across six countries and nine sectors2, the report, Constructive corporate engagements: From a corporate perspective uncovers what is needed to drive meaningful change in a company’s behavior, strategy and policy. It aims to address the growing need for investors to demonstrate how they exercise their stewardship rights and obligations, and the outcomes such activities deliver.

Sudip Hazra, the newly appointed Director of the Institute, said: “Understanding the company and tailoring the engagement to their business is the most important factor for driving positive results. Boards and management need to see that the engagement is thoughtful and compelling.”

Not all proposals needed to be driven by commercial benefits, the research found: in half (50%) of cases, a company took action because it believed doing so would give rise to a significant stakeholder benefit at limited cost to the company. However, outlining the high costs of inaction is also a key contributor to successful engagements.

The quality of the process is the second most important factor, the report found. In over half (51%) of engagements that led to action, shareholders were available for face-to-face meetings, and engaged directly, rather than through proxy advisors.

“Writing an investor letter and hoping for the best does not lead to change. Companies want to build meaningful relationships, and they want to know that the people driving the engagement deeply understand the issues. Companies also prefer engagements to be private rather than public, and to be verbal rather than written,” Hazra said.

The report also underlines the power of collaboration when it comes to effecting change.

“Companies tend to look more favourably on proposals that demonstrate collaboration and are backed by a significant number of shareholders. Two thirds (64%) of companies in the survey preferred engagements where shareholders collaborated over those involving a single investor. While investors still need to tick the boxes of good process and high relevance, strong shareholder consensus provides even more weight to the engagement,” Hazra said.

The report also sheds light on the factors likely to undermine engagement initiatives.

“An inability to demonstrate value or show an understanding of the business, a lack of resources within the company, and a confrontational process are the most common reasons for engagements to fail,” Hazra said.

In addition, the report delves into the challenges both companies and their shareholders face when engaging on environmental, social, and governance (ESG) topics, asserting the need for shareholders to improve their understanding of these complex issues and to find the right balance between engagement format, reporting and priorities.

Kate Turner, Global Head of Responsible Investment at First Sentier Investors, said: “The world is facing many urgent, systemic challenges, where both investors and companies need to be part of the solution. We believe we cannot simply divest our way out of issues such as climate change, so engagement is an essential part of driving positive change. However, engagement comes in many forms, and this research provides a valuable blueprint for investors and asset owners who want to make a difference and engage successfully.

“We are all putting a lot of time, energy and resources into engagement, so let’s ensure we are meeting companies where they’re at, and providing considered, relevant and meaningful suggestions.”

Dr Tom Gosling, Executive Fellow at London Business School and contributor to the research, said: “The research has robustly founded conclusions that can be applied in a practical way by investors to improve outcomes of their engagements with companies. It is therefore recommended reading for investors seeking to use corporate engagements to deliver positive results for all parties.”

The report concludes with a set of recommendations for shareholders to enhance the effectiveness of their engagements, including:

  • Building trust and mutual understanding with companies;
  • Discussing engagement objectives and success metrics upfront;
  • Collaborating with other shareholders; and
  • Holding direct, private and face-to-face engagements where possible.

Download the full report.

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About First Sentier MUFG Sustainable Investment Institute

The First Sentier MUFG Sustainable Investment Institute is jointly supported by First Sentier Investors and Mitsubishi UFJ Trust and Banking Corporation, a consolidated subsidiary of MUFG. The institute aims to help increase awareness and encourage action on important but under researched and emerging ESG-related issues. It will publish research on topics that can advance sustainable investing. An external academic advisory board informs the institute’s research agenda and ensures its publications meet high standards of rigour.

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About First Sentier Investors

First Sentier Investors manages US$148.3 billion in assets (as at 30 June 2023) on behalf of institutional investors, pension funds, wholesale distributors, investment platforms, financial advisers and their clients worldwide.

The firm was acquired by Mitsubishi UFJ Trust and Banking Corporation, a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc in August 2019, and operates as a standalone global investment management business with offices across Europe, the Americas, and Asia Pacific.

First Sentier Investors is a globally Certified B Corporation and signatory to the UK Stewardship Code. The firm’s investment expertise spans across a range of asset classes and specialist sectors focused on delivering sustainable investment success based on responsible investment principles.

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About MUFG

Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the world’s leading financial groups. Headquartered in Tokyo and with over 360 years of history, MUFG has a global network with approximately 2,400 locations in more than 50 countries. The Group has about 170,000 employees and offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group aims to “be the world’s most trusted financial group” through close collaboration among our operating companies and flexibly respond to all of the financial needs of our customers, serving society, and fostering shared and sustainable growth for a better world. MUFG’s shares trade on the Tokyo, Nagoya, and New York stock exchanges.

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About the Trust Bank

Mitsubishi UFJ Trust and Banking Corporation, as a core member of MUFG, provides its customers with a wide range of comprehensive financial solutions leveraging unique and highly professional functions as a leading trust bank. Such financial solutions include real estate, stock transfer agency, asset management and investor services, and inheritance related services, in addition to banking operations. We aim to realize our vision to be the trust bank that creates “a safe and affluent society” by always supporting our customers’ and society’s challenges based on Trust, and thus created a new key concept: “Create a Better Tomorrow”.

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1 The Institute defines a company or shareholder engagement as the process of a shareholder or group of shareholders communicating with, providing input to, and holding accountable, a company in which they own equity.

2 The countries included were UK, US, China, India, Japan and Australia. Nine sectors were included, the most common being financial services and informational technology (20 responses each), consumer staples (15), consumer discretionary, industrials and healthcare (10 each).

SOURCE First Sentier Investors