Today, Hermes Investment Management’s stewardship and engagement team, Hermes EOS, has published a new study with University of Göttingen, which sheds light on the key drivers of impactful shareholder engagement. The independent study, “Talk is not cheap – The role of interpersonal communication as a success factor of engagements on ESG matters”, examines the drivers of impactful shareholder engagement using the information from Hermes EOS’ engagement database.
Using a novel analytical method, which benefits from the depth of Hermes EOS’ proprietary engagement and stewardship information captured in a dedicated database going back more than a decade, researchers from the University of Göttingen were able to identify some of the key drivers of impactful engagement and found that:
- Personal, board-level interactions with the company substantially increase the chances of effective engagement success.
- To engage successfully on governance issues, it is particularly important to have direct contact with the chair of the board, who typically is a non-executive director.
- Successful engagements on social and environmental topics are not driven by letter writing; personal interaction with the company is also key for those engagements.
- Engagement is not a one-size-fits-all approach, especially for engagements at companies in emerging markets. The engagement approach needs to be tailored to the company’s specific circumstances and underlying ESG issues.
The new study adds to the growing body of literature on shareholder engagement, by showing that effective stewardship needs to be customised to the investee company’s circumstances and to the material ESG themes the company is exposed to. It also contributes to the discussion that meaningful change regarding companies’ ESG practices can in particular be affected through a personal dialogue at board level.
Dr Hans-Christoph Hirt, Head of Hermes EOS, said: “Stewardship practices are becoming increasingly important across the globe, and especially in Europe where the EU Shareholder Rights Directive is going to be implemented in the EU member states over the course of the next few years. Our longstanding experience suggests that engagement at board level – often at corporate headquarters – which requires significant resource and a specific skill set, is most effective and has the greatest impact. The results of this ground-breaking study underscore the importance of such dialogue between investors and companies. We are delighted that there is now firm evidence that EOS’ focus on board level interactions and our case-by-case approach towards corporate engagement allow us to affect change on ESG issues on behalf our clients contributing to more sustainable companies.”
Professor Michael Wolff, Chair of Management and Control at the University of Göttingen added: “The breadth and depth of the engagement data provided by Hermes EOS allowed us to apply a new analytical approach to uncover the key determinants of impactful shareholder engagement. With the help of this new approach, we were in the position to identify the various possibilities to achieve an impactful engagement, which is not possible standard analytical methods usually adopted. With our study, we do not only contribute to the academic literature, but also document from a practical perspective that effective shareholder engagement on environmental, social, and governance issues requires a case-by-case approach.”