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 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.”
A part of the Mark Allen Group.