The market for sustainable investments has been growing dynamically for years. And the number of institutional investors such as eco-funds that try to influence the sustainability policies of invested companies through engagement is also continuing to grow significantly, according to the latest market report from the Forum for Sustainable Investments (FNG). At the core of investors’ engagement is about encouraging companies to act more sustainably through constructive dialogue, for example in the direction of the ESG criteria or the 17 Sustainable Development Goals (SDGs) of the United Nations.
How powerful are investors?
However, there is currently no binding, standardized procedure for measuring and comparing the sustainability performance of companies. Consequently, it is not possible to quantify the specific influence that institutional investors have on corporate decisions with their engagement strategy.
However, there are already several “impact measurement” concepts for assessing the sustainability performance of companies. This includes the EU taxonomy, which classifies sustainable corporate activities. According to this, companies must disclose how “green” and socially responsible they are on the basis of defined criteria. The European Union’s “Corporative Sustainability Reporting Directive” (CSRD) brings additional sustainability transparency. It requires companies to gradually produce comprehensive reports on their sustainability efforts by 2026.
More on the topicEngagement makes companies more responsible
All of this allows investors to better see how far companies have already progressed on the sustainability path. What is not clear, however, is which sustainability improvements are due to the engagement of active investors. However, numerous international studies show that engagement is a significant driver of more sustainable corporate behavior. According to these studies, the targeted influence of large investors tends to improve SDG performance indicators and ESG ratings in companies. In short: companies are more open to sustainability issues and act more sustainably when responsible investors influence management through an engagement strategy.
However, influencing through engagement is a continuous process that not only results in concrete sustainability improvements, such as CO2 reduction in production or better working conditions, but also in long-term changes. This includes, for example, raising awareness of sustainability issues in management and in the company in general – which in the long term can contribute to a fundamental change in corporate culture and a stronger focus on ecological and social values.
