Fund Style Name: Responsible Engagement

Style USP: Encouraging positive change through dialogue and ownership

Brief description of Style:

Funds which encourage positive change through responsible engagement and shareholder activism.

SRI approach applied:

Fund managers use investment ownership rights to encourage higher environmental, social and governance (ESG) standards. Responsible engagement is business case based. Fund managers only encourage companies to change when they believe it is in their own best interest as investors. Fund managers tend to focus on companies that they have major holdings in where there are significant issues that relate to major business risks (including reputational risk) – or opportunities.

Engagement may take the form of face to face meetings, running seminars, writing reports and discussing management issues with senior company executives. Responsible investors also regularly vote their shares at AGMs and EGMs. Engagement occasionally culminates in shareholder resolutions – although these tend only to be used only as a last resort by UK fund managers.

Responsible engagement mainly applies to equity investments (shares) but can also apply to other asset classes such as property and bonds -however this requires different tactics as ownership rights vary.

SRI issues covered:

Example engagement areas include encouraging better management of major ESG (Environmental, Social and Governance) risk – or opportunity. This can include environmental issues – such as the use of resources and climate change , key social issues – such as employee relations and relationships with suppliers and key governance issues – such as executive remuneration, board structure and the avoidance of bribery and corruption.

Impact on investment strategy:

Applied as a standalone strategy ‘Engagement ’ has no direct impact on where a fund can invest.   Engagement activity can help fund managers to make better investment decisions by providing additional company information which can be integrated with other financial analysis.  The degree to which fund mangers use such information to help make investment decisions is not generally known.  Funds in this group within the Fund EcoMarket database are ‘Engagement Only’ funds and do not specifically support or avoid companies on ethical grounds.   This means investment decisions are not explicitly effected by ethical concerns.

Exceptions to this rule:

There is however an emerging SRI approach which involves excluding a limited number of companies on ethical grounds – but significantly fewer than in ‘ethical fund’ options.  These funds are grouped into this Style if their lead SRI strategy is ‘Engagement’ and ethical exclusions are minimal – and relate only to a small number of issues or universe of companies.  Additional information can be found within the fund entries for these funds.

Who is this Style most likely to appeal to?

Investors who do not wish to alter where they invest for ethical reasons will favour ‘engagement only’ strategies. Engagement only funds are ideal for investors who want to encourage companies to be more responsibly managed – providing they are not looking for themed or screened investments.

Variation across Style segment

Engagement strategies and the assets they cover, vary significantly as does the level of integration of engagement activity with financial analysis (see ‘Impact on Investment Strategy’ and ‘Exceptions…’ bullet points).

Different investment organisations commit different levels of resource to responsible engagement. Some fund managers employ significant in house specialist responsible investment teams (eg 10+ analysts) and regularly lead sophisticated engagement programmes. Other fund managers tend only to collaborate in industry wide initiatives. Both are valuable as they add to the critical mass of asset owners encouraging positive change.

Associated Styles

Responsible engagement is significantly different from other SRI Styles as it is about how investments are treated once in a portfolio.  As a stand alone strategy it does not alter where funds invest, however it is often combined with other strategies that do.  Engagement is regularly used by fund managers who wish to encourage positive change for the benefit of investors and can be combined with any strategy that is regarded as ‘responsible’ – such as ethical, environmental or sustainability related strategies.

Associated jargon

‘Responsible share/investment ownership’, ‘responsible investment’, ‘activism’ and ‘investor dialogue’.  Responsible engagement is sometimes referred to as an ‘overlay’ strategy as it is in addition to regular investment activity.  Some fund managers fully ‘ integrate’ this activity across their investment process.


Offered by a number of fund providers, including a number of well known managers. The most active tend to be those with additional SRI investment solutions on offer to clients. Engagement activity relates to those funds which hold the assets to which engagement strategies apply.

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