21st century companies and their shareholders are facing an increasing array of ESG challenges that can affect business and investment results. Climate change, water scarcity, community conflicts, resource depletion, supply chain breakdowns, worker well-being and economic inequality, coupled with instantaneous communication, can all present material risks and opportunities to businesses. Sustainability has become an imperative for successful corporations, and a variety of studies have shown that companies with strong sustainability cultures outperform their laggard peers. The business case for integrating ESG issues into mainstream investment practices has never been stronger.
More than ever, investors are actively engaging with their portfolio companies on ESG issues as part of their fiduciary duty and also to protect the long-term value of their assets. The evidence is everywhere, from the strong launch of the Shareholder-Director Exchange in 2013 to Glass Lewis & Co.’s purchase of Meetyl in late 2014—a technology platform that makes it easier for investors to research and schedule engagements with companies.
As a leader on corporate sustainability issues for 25 years, Ceres has seen remarkable growth in investor engagement on ESG issues—the focus of this guide—and we fully anticipate this trend to continue. More than 450 environmental and social shareholder resolutions were filed with US companies in 2014 alone, according to the Sustainable Investments Institute. And that number does not include the countless letters, meetings, conference calls and other types of engagement that shareholders had with listed companies last year.
We are witnessing a profound shift in communication between companies and shareholders—a shift to more regular, candid, behind-the-scenes conversations. We are also seeing investors exert more pressure to meet directly with board members on sustainability topics of mutual concern.
The pressures on investors to increase their levels of engagement with companies (and also with regulators and other market standard-setters, for that matter) have coincided with an uptick in beneficiaries and clients understanding that their investment portfolios have impact in the real world and that ESG issues are creating risk as well as opportunity for their investments.
We hope the collected wisdom in this 21st Century Engagement guide will empower even more investors to ask the right questions, and to demand thoughtful answers. Sustainable and responsible investment demands no less.