The effectiveness of shareholder engagement in improving corporate social and environmental performa

1
The effectiveness of shareholder engagement in
improving corporate social and environmental
performance

• James Gifford
• University of Sydney

2
What is shareholder engagement?

• Dialogue
• Voting
• filing resolutions
• voting against management
• Difficult to assess effectiveness

3
Insight Investment

• The asset manager of HBOS
• 83 billion under management
• Engages across entire portfolio
• Often use sector benchmarks as the basis for
  dialogue

4
Insights house-builders benchmark

• Collaboration with WWF and specialist property
  consultant, Upstream
• Two benchmarks over two years
• First on publicly available info then on info
  after engagement

5
Criteria used

• Governance and risk management
• Risk management
• Board commitment
• Sustainability policies
• Disclosure

6
Criteria used

• Impact on environment
• Environmental management systems
• Climate change
• EcoHomes
• Ecology
• Water
• Domestic waste
• Transport
• Procurement and supply chain management
• Construction waste

7
Criteria used

• Impact on society
• Health and safety
• Considerate construction
• Employment
• Delivering sustainable communities
• Stakeholder engagement

8
Key results

• Overall, companies substantially improved, both
  in terms actual practices and performance, and
  reporting
• 2003 Average 2005 Average
• Scores based on engagement 47 68
• Scores based on reporting 35 52

9
Key results
10
What makes companies change?

• Stakeholder/agency theory
• Mitchell, Agle and Wood (1997)
• Power, legitimacy, urgency
• Ryan and Schneider (2003) build on this to
  conclude pension funds are the most salient

11
Explaining shareholder influence

• Professional and systematic approach to
  engagement
• Resources applied
• Size of the holding
• Willingness to vote
• Use of the media

12
Explaining shareholder influence

• Willingness and ability to divest
• Persistence and assertiveness of investor
  pressure
• Degree to which investor is perceived as
  mainstream
• Strength and type of argument
• Firm size

13
Explaining shareholder influence

• Reputational vulnerability
• Attitudes of individuals within companies and
  company culture
• Organisation-wide commitment
• Collaboration with other investors
• Existence of legitimising standards, norms and
  principles

14
Explaining shareholder influence

• Collaboration with other stakeholders
• Regulatory/political environment
• Sharing information about emerging issues
• Benchmarking as an engagement tool

15
Conclusion

• Power was not crucial
• Legitimacy is the key
• Business case
• Information
• Relationship building
• Coalitions with NGOs and Government