As the responsible investing industry matures, more research shows how its principles can benefit investors. A recent study highlights the positive effects of shareholder engagement, namely that it can reduce risk for companies. Shareholder engagement is the practice of investors, such as a mutual fund, dialoguing with companies to progress their environmental or social responsibility. This is a key component to responsible investing, something many more passive ESG funds or ETFs do not typically engage in. To maximize impact for Blue Summit clients, many of the mutual funds we use have a shareholder engagement component to them.
Why would efforts to improve a company’s environmental or social responsibility decrease risk? Here are a few examples:
Companies with strong ESG (environmental, social and governance) characteristics typically have above-average risk control and compliance standards across the company and within their supply chain management.
Because of better risk-control standards, high ESG-rated companies suffer less frequently from severe environmental, social or governance incidents that can seriously impact the value of the company.
Fewer incidents lead to a better brand and decreased reputational risk.
As more research rolls out in the SRI industry, we further understand how company engagement can create value for investors. For responsible investors, it’s a win-win.
They can express their values through investments and push companies to have a better business footprint.
This article is informational and no guarantee that risk will be reduced for a particular holding or portfolio.