On the 15th of February, Esgaia held a roundtable discussion on engagement collaboration with institutional investors in Stockholm. With both asset managers and asset owners represented, the discussion centered around topics such as engaging with actors across the ecosystem, general challenges, and the role of technology.
Below follows a summary and insights from the discussion:
Work smarter, not harder:
Time is a scarce commodity, making resource allocation all the more important. This includes, but is not limited to your engagement priorities, points of intervention, and contribution to various collaborations and initiatives.
A focus on company performance vs market performance came to the fore, with argumentation for each in terms of value at risk and universal ownership. Importantly, it’s about finding a balance, and not letting the quest for alpha negatively impact beta.
Great collaboration is contingent on good coordination:
Inadequate coordination, as regards e.g. tasks and responsibilities, risk leading to reduced momentum and commitment. The participants mentioned a couple of examples at the respective ends of this spectrum, which really demonstrated the value of coordination and how important it is for the continued progress and success of different initiatives.
Increasing transparency will decrease duplication:
Participants agreed on the inefficiency of many investors engaging the same companies on the same issues, but noted how it’s a tricky issue as it's a natural part of asset management research and monitoring. From the corporate perspective, it partly functions as a filter to better understand investor sentiment and trends, while on the other hand, it can reach a point where it simply becomes unreasonable and inefficient for companies to manage.
Increased transparency of investors’ engagement dialogues and better structures for collaboration should see improved and streamlined communications, in turn leading to more effective stewardship. The challenge is not so much the transparency piece as finding suitable ways to coordinate.
Competition is not a drawback:
Realising the benefits from engagement will often require that the market can access and value such information. Competition-wise, the sharing of information wasn’t really perceived as a big problem. Firstly, companies are not permitted to share material non-public information, and secondly, investors will treat and interpret information differently, for example in how it might influence investment decision-making or not.
Here it makes sense to also comment on the free-rider problem. Though perceived as a key challenge to address collective systemic issues (as discussed by e.g. PRI in their Active Ownership 2.0 framework), it was not viewed as much of an issue by the participants. One reflected on how it might be a cultural aspect rooted in the long heritage of responsible investing in the Nordics, and thereof the importance of stewardship to most. Regardless, collaboration will only help to address free-riding through dividing resources and cost.
Technology can act as an enabler:
We came back to technology throughout the discussion. Sure, it had to do with Esgaia being the host of the roundtable, but also because many perceive it as a particularly suitable vehicle to help in coordination and information sharing, and to increase transparency. For example, today it’s hard to know who’s engaging who, and if there are overlaps between the different collaborative initiatives, something technology could help address in the future.
For more information on the growing importance of investor collaboration, please read this blog, with insights based on the theory of social network analysis.
//The Esgaia team