Leveraging Shareholder Engagement and Proxy Voting for Impact Investing

Shareholder engagement and proxy voting are important tools for impact investors who seek to align their investments with their values and make a positive impact on the world. Impact investing is an investment strategy that seeks to generate both financial return and positive social and environmental impact. Shareholder engagement and proxy voting are two ways in which impact investors can further their goals and promote positive change in the companies they invest in.

What is Shareholder Engagement?

Shareholder engagement refers to the process of investors engaging with the management and directors of a company to express their views and concerns, and to influence the company’s policies and practices. This engagement can take the form of direct dialogue with company leadership, submission of shareholder proposals, or participation in collaborative engagement initiatives.

Impact investors use shareholder engagement as a way to promote sustainable and responsible business practices and to encourage companies to adopt policies that are in line with their values and goals. 

What is Proxy Voting?

Proxy voting is the process by which shareholders vote on various proposals and initiatives put forward by the management and directors of a company. When shareholders can't attend a company's annual meeting, they vote "by proxy" by submitting their voting instructions in advance. Votes can be cast on numerous issues, including electing board members, approving compensation plans, and making decisions on shareholder proposals.

Impact investors use proxy voting to express their views on important social and environmental issues, such as climate change, human rights, and labor standards. By voting in favor of proposals that promote positive change and against proposals that are harmful to the environment or society, impact investors can use their voting power to shape the policies and practices of the companies they invest in.

Examples of Cause Areas

Both shareholder engagement and proxy voting are used by investors to tackle a variety of cause areas. Some of these include:

• Climate change: Shareholders can engage with companies on their emissions reduction targets, their alignment with the Paris Agreement, and their transition to low-carbon business models. For example, in 2019, a group of institutional investors, including pension funds and asset managers, engaged with ExxonMobil, one of the largest oil and gas companies in the world, on its climate change policies. The investors were concerned about the company's lack of action on reducing greenhouse gas emissions and its lack of transparency on its exposure to climate-related risks. The shareholder engagement led to a shareholder resolution that called for ExxonMobil to set targets for reducing its greenhouse gas emissions. The resolution was supported by a significant number of shareholders, signaling a growing demand for action on climate change among investors. In response to the shareholder engagement, ExxonMobil agreed to set emissions reduction targets and to provide more information on its exposure to climate-related risks. 

• Human rights: Shareholders can engage with companies on their human rights policies, their labor practices, and their efforts to address modern slavery and human trafficking. One example is the engagement by investors to address labor rights violations in the supply chain of companies, particularly in the technology and apparel sectors. For example, in 2015, a group of investors led by the Interfaith Center on Corporate Responsibility (ICCR) engaged with Apple Inc. to address concerns about labor rights violations in its suppliers' factories in China. The engagement led to Apple committing to improve working conditions and increase transparency in its supply chain, including regular audits and progress reports to investors.
  

• Biodiversity: Shareholders can engage with companies on their efforts to protect and preserve biodiversity, such as their efforts to reduce deforestation, protect wetlands, and conserve endangered species. For example, in 2020, a group of investors led by the Church of England Pensions Board, together with other organizations such as the Interfaith Center on Corporate Responsibility (ICCR), engaged with the world's largest timber and paper companies over their impact on deforestation. The investors called on the companies to adopt stronger policies to protect forests and ensure sustainable sourcing of raw materials. As a result of the engagement, several companies, including International Paper and WestRock, committed to reduce their deforestation footprint and increase the use of sustainable sourcing practices.
  
  
• Water management: Shareholders can engage with companies on their water management practices, such as their efforts to reduce water usage, improve water quality, and protect freshwater sources. For example, a shareholder engagement campaign was led by investors and environmental groups aimed at improving water management practices at Nestle. The investors and groups engaged with Nestle to highlight the risks posed to the company’s operations and reputation by water scarcity, water pollution, and poor water management practices. The engagement resulted in Nestle committing to set ambitious water stewardship targets and report on its progress, which was seen as a positive outcome for both the company and the environment.
  
  
• Corporate governance: Shareholders can engage with companies on their corporate governance practices, such as their board composition, executive pay, and anti-corruption policies. One example of this is the shareholder proposal submitted by Arjuna Capital to tech giant Apple Inc. in 2016, which called for the company to increase diversity on its board of directors. The proposal was supported by a coalition of shareholder advocacy groups and eventually led to the appointment of a new member from an underrepresented background to Apple's board. This type of shareholder engagement can help drive positive changes in corporate governance, leading to better outcomes for stakeholders, including investors, employees, and communities.

Shareholder Engagement and Proxy Voting for Endowments & Foundations

Endowments and foundations play a critical role in addressing societal challenges through their investment choices. Increasingly, these organizations are leveraging their ownership rights in publicly traded companies to foster sustainable business practices and drive positive social change. They often do this through shareholder engagement and proxy voting, which can be an important component of their impact investing strategy.

In addition to the cause areas above, Endowments and foundations can use shareholder engagement and proxy voting as powerful tools to influence corporate behavior and drive positive impact. They can do this by:

1. Promoting ESG Integration: Shareholders can urge companies to integrate environmental, social, and governance (ESG) factors into their strategic decision-making. For instance, shareholders can encourage companies to adopt sustainable business practices, improve labor conditions, and enhance board diversity.
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2. Aligning Investments with Mission: Engaging as active shareholders allows endowments and foundations to ensure their investments align with their mission. Through dialogue and voting, these organizations can influence companies to act in ways that reflect the values and objectives of the endowment or foundation.
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3. Mitigating Risks: Shareholder engagement can help mitigate investment risks by addressing ESG issues that could negatively affect a company's financial performance. For example, shareholders can push for better corporate disclosure on climate risks or human rights practices, thereby contributing to more informed investment decisions.

Implementing an Effective Engagement Strategy

To implement an effective shareholder engagement and proxy voting strategy, endowments and foundations should consider the following steps:

1. Establish Clear Goals: Define what you aim to achieve through shareholder engagement. This could range from encouraging a company to reduce its carbon footprint to advocating for fair labor practices.
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2. Collaborate with Others: Join forces with other investors to amplify your impact. Collective engagements are often more successful than individual efforts.
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3. Develop a Voting Policy: Adopt a proxy voting policy that reflects your mission and values. This policy should guide how you vote on various ESG matters. To help streamline the handling of the voting process, foundations can engage a proxy voting firm to assist based on the policy that you set.
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4. Engage Regularly: Consistent engagement is key. Regular dialogue with companies can foster mutual understanding and lead to meaningful change.
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5. Track and Report: Monitor your engagement activities and outcomes. Reporting on your efforts demonstrates your commitment to your mission and accountability to your stakeholders.

Conclusion

Shareholder engagement and proxy voting are important tools for impact investors who seek to make a positive impact on the world. By using these tools, impact investors can promote sustainable and responsible business practices, express their views on important social and environmental issues, and use their voting power to shape the policies and practices of the companies they invest in.

Impact is our ethos: At Fire Capital Management, we seek out opportunities that provide both financial and social returns. We’ll work with you to develop an impact strategy to help you focus your giving on the causes that you care about and to build your legacy, from the way you invest to the way you give.
Get started on making the impact that's important to you.

Looking for more detail on Sustainable and Impact Investing terminology? View our ESG Investing Definition Glossary.