The survey responses from 100 senior company directors and the interviews with ten executive directors identified several key factors driving successful constructive corporate engagements.

Collaboration

One of the key success factors is the collaboration between shareholders and companies to identify and prioritise material ESG issues. Collaborative engagements that build long-term relationships and adopt a tailored approach are more likely to achieve positive outcomes.

Materiality

The report found that engagements focused on material ESG topics had the most significant impact on a company’s decisions. Identifying and prioritising material ESG issues are imperative before engaging with companies to produce effective outcomes. Regular monitoring of company sustainability reports can help identify current and emerging material issues.

Standard metrics

The survey revealed the importance of using standard metrics to evaluate the outcomes of engagements. Standard metrics can also help improve the quality of engagements by focusing on the main ESG issues.

Criteria that increase the likelihood of success

Five key factors are associated with companies taking action in response to an engagement. Firstly, a good case relevant to the individual company is essential. Where the engagement was well-thought-through, and the shareholders had a compelling case, companies were more likely to take action. Secondly, clear objectives and a focus on material ESG issues are critical to engagements. Thirdly, successful engagements were positive and collaborative, building long-term relationships. Fourthly, having mutual benefits that are clearly communicated helps to generate positive outcomes. Finally, the engagement format and reporting were also significant factors associated with successful engagements.

Factors that decrease the likelihood of success

The following three factors reduced the likelihood of a company taking action in response to an engagement. Firstly, a lack of materiality to the engagement, with proposals having little or no commercial benefit, can affect the effectiveness of the engagement. Secondly, a lack of metrics to evaluate engagement outcomes can reduce the quality of engagements. Finally, companies may be less likely to take action in response to confrontational engagements.

Recommendations for investors

Investors should take an active role in collaborating with companies to identify and prioritise material ESG issues. They should also provide clear objectives and communicate mutual benefits that can improve the quality of engagements. Moreover, standardising engagement metrics, formats, and reporting can focus on ESG issues and improve the quality of engagements.

Recommendations for companies

Companies should focus on identifying and prioritising material ESG issues, engaging in regular sustainability reporting, and collaborating with shareholders to improve the engagement process quality. Also, companies should use standard metrics to evaluate the outcomes of engagements, making it easier for stakeholders to understand and improve engagement quality.