To communicate your company’s ESG story and achievements while meeting investor expectations, you need effective investor engagement.
To communicate your company’s ESG story and achievements while meeting investor expectations, you need effective investor engagement. Whether you’re hosting roadshows, investor days, issue-specific multi-stakeholder discussions or one-on-one engagements with investors or proxy advisors, you need to be transparent, accountable and prepared in order to build credibility with investors and gain support when it comes to voting.
Why engagement matters
Engaging with your investors positions your company as transparent and proactive, which in turn helps to foster a positive relationship. Reaching out to investors for feedback opens lines of communication to discuss the reasons behind the voting decisions and allows companies to better prepare for similar situations in the future.
Outcomes witnessed in 2020 prove that if a company doesn’t ensure its board and senior management are accessible, investors will not hesitate to use their voting power to make their views known, particularly when it comes to directors failure of oversight. If you have had a disappointing voting outcome, investors and major proxy advisors will be carefully scrutinizing the board’s responsiveness, which means shareholder engagement is key to demonstrate your company is considering their feedback.
In FY20 BlackRock held a record number of engagements – 3000 in total globally. In its latest stewardship report, the firm stated that in 2021 it expects companies to demonstrate an understanding of key stakeholders and their interests, as well as indicating a strong focus on engaging with companies in carbon-intensive sectors.
Stakeholder engagement process
1. Define the approach
Assess investor priorities, policies, voting and relevant ESG trends. Develop engagement strategy and priorities.
2. Assemble a team
Identify internal stakeholders. Select external partners and advisors to help with proxy voting and ESG.
3. Prepare carefully
Advanced, comprehensive preparation leads to productive, positive engagements.
4. Reach out to investors
Executives and directors proactively solicit input on prioritized issues.
5. Evaluate and feedback
Analyze engagement data and research investor issues or concerns. Share findings with the board.
6. Respond and implement
Follow up with investors as appropriate. Disclose policy/practice changes resulting from engagements.
Who to engage with
Every company’s engagement strategy will be specific to its shareholder base and outreach goals. For example. if your company is just beginning to establish an engagement program, it’s key to reach out to the investors who hold the greatest number of shares, and therefore, the greatest voting influence. In some cases, it is also important to connect with those shareholders who may sit outside your ‘biggest’ players list, who are nonetheless just as influential or vocal within shareholder initiatives or activist circles. Working with an engagement expert like Georgeson, can help identify these investors and help you understand which ones to prioritize on your engagement agenda.
Generally speaking, institutional investors will vote more often than retail investors. For many companies, the ‘big three’ asset managers – Vanguard, BlackRock and State Street, who together hold over 20% of shares in the S&P500 – wield significant voting influence and should be prioritized accordingly. All three of these investors recently have significantly increased their willingness to use their proxy votes to effect outcomes on a number of key ESG issues, resulting in an increase in companies’ motivation to engage on these topics.
In 2021, average support increased across environmental, social and governance proposals, with environmental proposals accounting for the largest year over year increase. This result is not surprising given investors’ significant focus on climate-related issues, and accompanying revisions to proxy voting guidelines to incorporate that focus heading into the peak 2021 proxy season.
Average support 39.68% (up by more than 10% from 2020)
Average support 32.63% (up by almost 6% from 2020)
Average support 35.90% (up by 2.5% from 2020)
Who to include in your team
The primary purpose of your shareholder engagement will play a part in determining the composition of your engagement team. For example, if your engagement is focused on corporate governance issues, you would seek to include your general counsel and corporate secretary as key members of your team. And while your board members do not necessarily have to be directly involved in engagements, as mentioned above, it is integral that your board and senior management are seen to be accessible by your investors, and a failure to do so, could lead to undesirable voting outcomes.
In some circumstances, your investors may be more inclined to engage if your board members are participating, such as when your engagement is focused on executive compensation, when a member of your board will be expected to attend.
It is also important to ensure a member of your team is a dedicated note-taker during the meeting. A member of your investor relations team or your company secretary could be an important asset here, to ensure discussion points and key actions are documented accurately to avoid issues later on. These notes can form the groundwork for your action plan following the meeting and is an important step forward in helping your company effectively address investor concerns.
When to engage
Timing is everything, but engagements shouldn’t only happen when companies are faced with a challenge at the ballot box. You want to develop the relationship on a “clear day” when there isn’t a vote on the line. If the first time an investor hears from your company is in connection with a vote, they may be considerably less supportive, than if the relationship has been fostered outside of potentially contentious circumstances. Of course, if your company is facing proxy season challenges, such as a negative recommendation from a proxy advisor, engagement may need to take place during proxy season. However, it is important to note that some proxy advisors will not engage in-season, so it’s important to take policies into account where you understand it may be challenging year.
Following on from this, conversations are likely to be more productive – and investors are likely to have greater availability – during the “off-season,” which generally stems from late summer through to February. The opportunities for engagement reduce significantly from early March with the start of proxy season, so it’s important that companies begin confirming participants’ availability as early as possible. But regardless of when an engagement occurs, preparation is key.
How to prepare
With investors of all types becoming increasingly active in their ownership, and ESG considerations increasingly driving voting decisions, it's more important than ever to engage. But prior to engaging, it’s important to understand investor priorities and what questions they might ask. Being prepared for any eventuality is critical to facilitating a successful engagement, as well as being aware that investors will follow your company’s actions post-engagement as a measurement of progress.
Investors are becoming increasingly sophisticated in integrating companies’ engagement histories into their ongoing analysis of companies. For example, Legal and General use their LGIM ESG score to hold companies to account and enact change across the globe.
Preparation can be overwhelming. Understanding who will be in attendance, what they’ll be addressing, and how approach the conversation, it can all seem like an insurmountable challenge. But with the right support and meticulous preparation, your company can reap the benefits of successful investor engagements.
Let Georgeson help you achieve successful engagement outcomes
Thoughtful preparation is vital to having productive conversations and Georgeson can help. Georgeson has the extensive experience and network of resources to ensure your investor and proxy advisor engagements are productive and successful. The right engagement offers you a heightened understanding of ESG expectations and proxy voting policies as well as an opportunity to build credibility with investors.
With Georgeson’s ESG advisory team by your side, we will help you:
- Develop your engagement strategy and agenda
- Gain a better understanding of investors’ ESG expectations and viewpoints
- Design impactful cross-channel communications to effectively engage your investors
- Prepare for possible investor questions on ESG topics
- Manage the engagement process, with in-depth insights and details about your investors
- Ensure nothing vital is missed or misunderstood with comprehensive notetaking assistance (where possible)
Exceed investor expectations. Let Georgeson help you open channels of communication and set you on the path to success.
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