Engagement in ESG Investing:
Engagement in ESG investing is a strategy used to preserve and enhance long-term value on behalf of the asset owner. This process involves active communication and interaction with investee companies to influence their behavior and practices regarding various ESG factors.
1. Focus Areas of Engagement:
Capital Structure: Engagement can focus on capital structure, which includes discussions about debt levels, equity financing, dividend policies, and other aspects that impact a company’s financial health and long-term stability.
Lobbying: Engagement may also address corporate lobbying practices, especially if these activities are perceived to be misaligned with the company’s stated values or could pose reputational risks. Ensuring that lobbying efforts are transparent and aligned with sustainable business practices is part of maintaining long-term value.
2. Role of Engagement: The primary goal of engagement is to enhance the long-term value by addressing key factors that can influence the sustainability and financial performance of a company. This includes governance issues, environmental practices, and social responsibilities.
References from CFA ESG Investing:
Engagement Strategies: The CFA Institute emphasizes the role of engagement in managing and mitigating risks associated with ESG factors, which can include capital structure and lobbying activities. Engagement aims to promote transparency, accountability, and sustainable business practices that support long-term value creation.
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