2 October, 2023 / Analysis

Engagement: Is any asset justified?

By Anna Fedorova

The investment industry has shifted from divestment to dialogue – the challenge is to measure the results

Engagement: Is any asset justified?

Engagement has been a controversial topic over the years in the world of ESG investing. This approach involves investing in a company, often an underperformer on ESG metrics, and opening a long-term dialogue to improve its practices.

However, since the early days of ESG investing, stalwarts of the space argued against engagement and in favour of divestment from these so-called ‘brown’ companies, on the grounds that capital should not flow towards polluting industries like coal and gas.

See also: – Gap between pledges and progress

Over the years though, this narrative has shifted, with the benefits of engagement becoming more accepted by the wider investment community. To date, some $40.5trn has been divested from fossil fuels by 1,593 institutions worldwide, but the majority of these are educational, faith-based and philanthropic institutions. Many asset managers, meanwhile, are choosing the engagement approach.

Michael Herskovich, global head of stewardship and proxy voting within BNP Paribas Asset Management’s Sustainability Centre, says: “We always favour engagement over divestment to try to improve a company’s performance or to tackle controversies, although we divest as a last resort, in instances where companies do not respond to engagement and show no signs that they will place greater emphasis on sustainability in the future.”

Read the full article in ESG Clarity Intelligence’s first e-zine

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