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What is engagement washing...and how to avoid it

What is engagement washing...and how to avoid it

Asset managers are facing a new challenge known as "engagement washing". In this article we take a closer look at what this means in practice and provide seven helpful tips to avoid falling into that trap.

June 30, 2023

As asset managers scramble to meet sustainability demands, a concerning new trend is emerging: Engagement washing. Similar to greenwashing, it’s when firms exaggerate or overemphasize the level or impact of their ESG (environmental, social, governance) interactions with holding companies.  

While some engagements are structured around firm sustainability goals, timelines, and consequences, many are so-called “tea and biscuits” conversations. Although this does little to move the dial on pressing issues, some asset managers will highlight these thousands of meetings as a win for responsible investing.

At the heart of the problem is a lack of standardisation around the term “engagement”. Citywire found the 13 asset managers they surveyed all had different definitions[1]. Added to this, there is immense investor and regulatory pressure for asset managers to show they are doing the right thing. This stress mixed with a general confusion around the term “engagement” increases the risk of flimsy and artificial interactions.

Engagement washing represents a real problem for asset managers who must ensure that investors’ demands are met. Nobody wants to be complicit in a potential greenwash scandal. In this article, we’ll offer seven helpful tips for asset managers and owners to navigate the murky world of engagement washing.


1. Take a closer look at your resourcing

UN PRI Head of Active Ownership, Emmet McNamee believes you can tell a lot about how serious an asset manager is by the number of employees allocated to engagement and stewardship[2]. As he explained to Citywire, “If you see an engagements-per-analyst number that is about 100 or more – which is not uncommon in this industry – then you know that there’s a problem [because this is] more than any individual could do quality engagement on[3].

In order to drive meaningful change in the industry, it is crucial to invest resources wisely. This does not necessarily mean expanding the stewardship team; it involves integrating engagement into the day-to-day interactions of analysts and fund managers. This integration can be reinforced through ongoing training and the adoption of appropriate tools and technologies to streamline processes. When the stewardship and investment teams are fully aligned on the strategy for each engagement target, they are more likely to maintain a laser-like focus on achieving the desired outcomes.

2.  Focus on quality, not quantity

As Andrew Parry, Head of Investments at JO Hambro explained in an interview: “I think there’s been a huge push to demonstrate quantity, sometimes at the expense of quality and the reality of what you can and cannot achieve.” He adds, “You find out that it’s a lot of superficial letter writing, whereas you really need to have long conversations and follow-ups”.[4]

For asset managers to make the maximum impact, they must home in on the riskiest holdings and key areas, and carefully assess feasibility. Systemic and complex issues require strategic engagement planning and dialogue. One of these areas should probably be transitioning to a low-carbon future. Although this may seem obvious, today 37% of asset managers have still not included this in their thematic priorities[5].

Where investors do not have the resources to allocate to such engagements on their own, they can join others in collaborative initiatives, where resources and influence are pooled together and responsibilities are shared. However, it is important to note that merely joining an initiative and taking a passive role is insufficient. Active participation is required to drive meaningful change and guard against engagement washing.

3.  Track progress

To avoid engagements being classed as “tea and biscuits” meetings, asset managers must thoroughly track the progress being made. This is where key performance indicators and monitoring come in. There should be transparent and detailed explanations every step of the way.

What should these KPIs look like?

At the basic level, if you are trying to affect change at a company or policy level, set clear and specific engagement objectives and break these down by milestone progress. What can your reasonably expect to achieve in any given time period? While setting ambitious targets is noble, they need to be rooted in reality and be feasible.

This isn’t too different from using the common management framework of SMART goals. SMART stands for: Specific, Measurable, Achievable, Relevant and Time-bound.

Asset owners can ask for detailed engagement progress information from their fund managers. If funds and holding companies are missing the mark, there should be a clear escalation policy.

Disappointingly, most asset owners are not asking the right questions about tracking and progress. “Few look beyond standard responsible investment reports when assessing and monitoring asset managers”[7], adds David Atkin, CEO of PRI.

4.  Ensure escalation strategies are followed

Only 60% of asset owners check that the escalation strategies of their asset managers are followed through[8]. According to the PRI, this makes it the least common engagement activity. But ensuring that escalation policies are happening is critical.

Today, a staggering 82% of CA100+ signatories do not specify escalation steps for unsuccessful engagements[9]. And of the eleven that did, the language was mostly weak and non-committal. Share Action found six of these eleven investors included qualifiers to their escalation, such as “we typically”, “we may”, “we will consider”, and “we can”.[10]

It’s ironic, because when it comes to revenue and profitability, asset managers tend to run a tight ship. They have military-grade targets, with incentives and high bonuses for the best achievers. And there is often little sympathy for underperformers. But when it comes to engagement, the purpose of the meetings is getting lost.

According to investment consultancy Redington’s Sustainable Investment survey 2022, most “engagements for change” did not seem to result in tangible outcomes. Nick Samuels, Head of Manager Research at Redington suggested “ideally, managers should have mechanisms in place to hold engaged entities to account, including appropriate escalation routes in the event of inaction or a negative response. If the existing engagement truly is a stepping stone, managers need to be able to track the later progress”.[11]

The good news is that investors now have more guidance about developing escalation approaches. This is in part thanks to policy initiatives such as the FRC’s UK Stewardship Code, which lays out reporting expectations on escalation approaches at fund and holding level. It’s a good place to start. In fact, the FRC published a review of last year’s stewardship reports and provides useful examples of escalation.

5.  Embrace proxy voting

Proxy voting is one of the most powerful and cost-effective ways for asset owners to affect change and tackle engagement-washing.

When it comes to influencing corporate behaviour and fostering accountability, proxy voting ensures that shareholders have a say in shaping the future direction of the company and can voice their concerns on key issues. Proxy voting provides the foundation for shareholder democracy, granting investors the power to shape corporate governance.

Proxy voting and engagement go hand in hand. Together, these two mechanisms form a formidable duo, enabling investors to assert their rights, drive positive change, and hold companies accountable for their actions.

To avoid engagement-washing, investors should clearly evidence the link between their engagement activities with a company and their subsequent voting decisions. Connecting the two demonstrates intentionality and a coherent strategy for achieving stewardship objectives.

6. Be patient and pragmatic

Engagement requires patience and a long-term perspective, as change does not happen overnight. When investors engage with companies on ESG issues, they are essentially advocating for meaningful and sustainable transformations in business practices. However, effecting change on complex issues such as climate change, diversity and inclusion, or supply chain sustainability takes time. ESG engagements involve building relationships, understanding company dynamics, and working collaboratively towards shared objectives. It requires ongoing dialogue, setting realistic goals, and monitoring progress over extended periods. While the pace of change may vary across companies, it is crucial to recognise that lasting ESG transformations require persistence, commitment, and a recognition that real change is a journey rather than an instant outcome.

7. Get organised and use the right technology

As we’ve seen above, there’s a lot that investors can do to avoid engagement-washing. But this involves a huge amount of planning, process, data, communication, and reporting. Having the right tools at your fingertips can save time and ensure efforts are being maximised.

Using a purpose-built ESG integration and stewardship software such as the Impactive Platform is a smart way to go. It provides investment and stewardship teams with a centralised ESG integration hub, helping to build up a 360⁰ view of portfolios through centralised visibility of investment notes, ESG engagements, proxy voting ratings and research. Its built-in engagement tracking tool helps users to systematically capture engagement objectives and interactions, and evidence progress and outcomes, mitigating any engagement-washing concerns.

Plus, there’s so much more. Try it out for free here or contact us at info@impactive.pro


[1]Source: Citywire “How 13 fund groups define ESG engagement”

[2] Source: Citywire “Meetings for Meeting’s sake

[3] Source: Citywire “Meetings for Meeting’s sake

[4]Source: Citywire “Quantity over quality

[5] Source: Share Action “Power in numbers

[6] Source: PRI

[7] Source: PRI

[8] Source: ShareAction "Power in numbers"

[9] Source: Share Action “Power in numbers

[10]Source: Redington

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