Knowing that engagement matters is one thing. Knowing how to actually do it well is another. This lesson moves from the "why" to the "how", covering the different styles of engagement, the escalation tools available when dialogue stalls, the mechanics of proxy voting, and the practical infrastructure that makes stewardship work at scale.
Who Engages? The Engagement Delivery Structure
There is no single model for how an investment institution delivers engagement. Some asset owners engage directly with companies through in-house teams. Others expect their external fund managers to handle stewardship, either through portfolio managers who also act as stewards, through specialist stewardship teams within the firm, or some combination of both.
Engagement activities can also be partially or fully outsourced to stewardship service providers, specialist organisations that engage with companies on behalf of their asset manager clients. These providers aggregate the interests of multiple clients, which gives them scale and visibility that individual smaller investors cannot achieve alone.
Almost all institutional investors also rely on proxy voting advisory firms, organisations that analyse shareholder meeting agendas across thousands of companies and provide voting recommendations. The two dominant firms in this market are ISS (with approximately 80% of the market) and Glass Lewis (with most of the remaining 20%). Proxy advisers provide the administrative infrastructure that makes it possible for large institutions to vote at every AGM in their portfolio, a task that would be logistically impossible to manage manually at scale.
Proxy advisory firms play a crucial operational role, but most investors treat their recommendations as a starting point rather than a final word. Thoughtful investors apply their own judgment, particularly for significant votes at companies where they have a deeper relationship or more nuanced view than any generic advisory template can capture.
A growing trend is pass-through voting: BlackRock and Vanguard now offer clients the ability to cast their own proxy votes on underlying holdings, rather than delegating that decision entirely to the fund manager. This reduces the concentration of proxy power in a small number of very large asset managers, a concern regulators and policymakers have raised as these firms have grown to manage tens of trillions in assets.
Styles of Engagement
Individual vs. Collaborative Engagement
The most fundamental divide in engagement style is between individual engagement, where a single institution conducts the dialogue, and collaborative engagement, where multiple institutions coordinate their approach.
Individual engagement can be more strategically valuable in certain situations. An investor that wants to address a highly specific or commercially sensitive issue, or that prefers to manage an ambiguous situation discretely, may find individual engagement more effective. It can also be faster to initiate and more tailored to the company's specific circumstances.
Collaborative engagement, however, has important advantages, particularly for smaller investors or for issues that require significant leverage. When multiple investors with material combined shareholdings express the same concern, companies are far more likely to take notice. It is also resource-efficient: pooling engagement work avoids duplication and allows each investor to contribute specialised expertise.
Example, Climate Action 100+ (CA 100+): This is one of the most significant collaborative engagement initiatives in practice. CA 100+ targets the world's largest corporate greenhouse gas emitters, with a coordinated group of institutional investors appointing a lead engager for each target company. The initiative has achieved notable results, including strategic shifts by major European oil companies such as Repsol, Total, ENI, BP and Shell, each of which has significantly revised its long-term investment plans.
Top-Down vs. Bottom-Up Approaches
Engagement styles also differ based on where they begin, the issue or the company.
Think of the difference between casting a wide net and spearfishing.
Top-down engagement is casting a wide net, you identify a systemic issue (say, climate risk or board diversity) and address it simultaneously across all relevant holdings. You cover a lot of ground efficiently.
Bottom-up engagement is spearfishing, you focus all your engagement energy on a single company, developing a detailed, tailored agenda around that specific business and its specific vulnerabilities. You go deep rather than wide.
Most investment houses use both. The right approach depends on the issue, the portfolio, and the strategy.
Issue-based (top-down) engagement starts with a thematic concern, climate risk, board diversity, supply chain labour standards, and applies it broadly across all relevant companies in a portfolio or sector. This approach is typical of passive investors with large, diversified portfolios. BlackRock's annual letter from its CEO to company chairs is a well-known example of top-down engagement at scale, setting out priorities the firm intends to pursue across all its holdings.
Company-focused (bottom-up) engagement starts with the individual company and its specific business issues. Active fund managers with concentrated portfolios often favour this approach, identifying companies where particular ESG concerns are material to the investment thesis and developing a tailored engagement agenda that cuts across multiple issues.
Forms of Engagement: From Soft to Hard
The Investor Forum's framework identifies twelve distinct forms of engagement. Rather than list them as a single sequence, it helps to group them into three clear categories by formality and force.
Category 1, Low-intensity, individual:
- Generic letter, broad communication on a shared theme across many holdings
- Tailored letter, specific and targeted, covering issues at varied levels of detail
- Housekeeping engagement, annual relationship-maintenance dialogue with limited specific objectives
- Active private engagement, targeted, specific, conducted confidentially between investor and company
Category 2, Escalated, individual:
- Active public engagement, engagement deliberately made public by the institution, signalling that private dialogue has not produced results
Category 3, Collaborative (increasing formality):
- Informal discussions, investors share views on a corporate situation without coordinating a position
- Collaborative campaigns, coordinated letter-writing or market-wide campaigns on a sector theme
- Follow-on dialogue, company engagement led by one or more investors after a broader group expression of views
- Soliciting support, gathering support for a "vote no" campaign or other publicly stated target
- Group meetings, structured meetings with a company, followed by a co-signed letter
- Collective engagement, a formal coalition with a clear objective, coordinating over time with a designated body
- Concert party, formal agreement with concrete objectives and agreed escalation steps, such as jointly proposing a shareholder resolution
A concert party is the most formal and highest-risk form of collaborative engagement. Acting "in concert" means coordinating with other investors to the point where regulators treat the group as a single controlling entity, which triggers mandatory takeover bid rules in most markets. Investors in formal coalitions must be careful not to cross this line, which is why collective engagement vehicles are structured deliberately to avoid binding coordination.
Escalation Strategies
Most effective engagements begin with private dialogue and only move to more forceful measures if the company is unresponsive.
Typical escalation steps:
- Holding additional meetings with management specifically to discuss concerns
- Expressing concerns through the company's advisers (bankers, lawyers)
- Requesting meetings with the chair or other non-executive board members
- Intervening jointly with other institutions on particular issues
- Making a public statement in advance of general meetings
- Submitting a shareholder resolution or speaking at the AGM
- Requesting a general meeting, in some cases proposing to change board membership
Additional tools:
- Writing a formal letter to the chair putting concerns on the record
- Seeking dialogue with other stakeholders, regulators, creditors, customers, NGOs
- Formally requesting a special audit (available as a shareholder right in some jurisdictions, notably Germany)
- Taking concerns public through media or other channels
- Threatening or executing divestment, making formally clear that the investor may sell unless change occurs
Escalation is not linear. Many engagements progress through private dialogue for years without needing formal escalation. But when escalation is necessary, think of it as a ladder, moving step by step, giving the company opportunity to respond at each rung. Jumping multiple steps at once is sometimes necessary when urgency demands it, but risks burning the relationship before it is truly necessary.
Example, The Norwegian Government Pension Fund Global (Norges Bank): One of the most systematic escalation processes in practice operates through Norway's sovereign wealth fund. An independent ethics council considers whether companies should be excluded based on behaviour that leads to unacceptable outcomes, including severe environmental harm or breaches of international norms. The fund manager (NBIM) considers these recommendations and can exclude companies. The full exclusion list is made public, creating reputational pressure well beyond the fund itself, other investors monitor the list and sometimes follow its exclusions.
Divestment as an escalation tool is controversial. Its influence is greatest when conducted formally and transparently, so the company is aware it is approaching the point of sale. A private, unexplained exit has little stewardship value. A formally signalled, publicly disclosed divestment process can create real pressure for change.
Proxy Voting and Shareholder Resolutions
Voting at shareholder meetings is the most visible element of stewardship. Most investors now regard the vote as a client asset, something to be exercised with care and deliberation, aligned to the investment thesis and stewardship agenda.
Voting occurs primarily at Annual General Meetings (AGMs) and, less frequently, at Extraordinary General Meetings (EGMs). The typical agenda covers:
- Approving the report and accounts
- Re-electing directors
- Approving executive remuneration (advisory and/or binding votes, depending on jurisdiction)
- Appointing or reappointing the auditor
- Authorising share issuance or buyback
In practice, voting is exercised by proxy, the investor appoints a representative to cast votes at the meeting on their behalf, since physically attending every AGM across a large portfolio is impossible.
"Say on Climate" Votes
A growing trend in corporate governance is the "Say on Climate" vote, a management-sponsored advisory resolution asking shareholders to approve (or reject) the company's climate transition plan. First pioneered by large UK and European companies, these votes give investors a formal, annual opportunity to signal whether they believe the company's climate strategy is credible and ambitious enough. A significant vote against a "Say on Climate" resolution sends a powerful public signal, even without any binding legal consequence.
Voting as Engagement
Voting is most powerful when it is connected to an ongoing engagement dialogue rather than treated as an isolated exercise. Investors who have engaged with a company on board diversity, for example, are well-positioned to vote against the reappointment of a nominations committee chair if no progress has been made. A vote without an accompanying explanation has limited impact; a vote that the company knew was coming, backed by a clear rationale communicated in advance, is a far more effective signal.
Most institutional investors communicate their voting rationale to companies, either in writing or through dialogue ahead of the meeting. This contextualises the vote, demonstrates that it is a considered position aligned to the investment thesis, and opens the door for the company to provide further explanation that might affect the final decision.
Shareholder Resolutions
In many jurisdictions, shareholders above a minimum ownership threshold have the right to propose resolutions for consideration at the AGM. This is a significant escalation tool, because:
- Resolutions must be published in AGM papers, making the concern public
- Garnering even minority support (say 25%-30%) sends a powerful signal to the board
- The process of filing often catalyses a private dialogue that resolves the issue before the resolution comes to a vote
In the US, shareholder resolutions are most common. A company that wishes to exclude a resolution from its AGM must seek a ruling from the SEC confirming it has the right to do so. The threat of filing, and the private negotiations it prompts, is often as influential as the resolution itself.
Practicalities of Effective Engagement
Setting Clear Objectives
The first and most important step in any engagement is to define what success looks like. Engagement without a clear objective is monitoring by another name. The Investor Forum and the PRI both emphasise that the majority of engagements should have specific, measurable KPIs against which outcomes can be assessed.
Clear objectives serve several practical purposes:
- They give the company a concrete agenda, reducing the risk of unproductive meetings
- They allow the investor to identify the right counterpart (sustainability team for operational ESG; CEO or CFO for strategic concerns; chair for governance issues)
- They provide the basis for determining whether escalation is warranted
- They allow clients and beneficiaries to hold the investor accountable for outcomes
Prioritisation
Because resources are always finite, investors must prioritise two related decisions:
- Which companies in the portfolio to engage actively, beyond baseline monitoring
- Which issues to raise at any given company, raising too many concerns at once risks diluting the message and confusing the company about what matters most
For active managers, the natural prioritisation is companies and issues where value is most at risk. For passive managers, who cannot simply sell their holdings, the calculus shifts toward the largest positions and the most material market-wide issues.
The Engagement Meeting in Practice
A typical engagement meeting involves an investor representative with roughly an hour to explore a focused set of issues. Good engagement practice includes:
- Sharing an agenda in advance, this signals professionalism and establishes a framework of honest, open dialogue
- Listening as much as talking, good engagement seeks understanding and constructive dialogue, not a lecture
- Understanding why change might be difficult, companies' cultures, histories, and internal politics often stand in the way of changes that appear straightforward from the outside
- Keeping dialogue private initially, media attention tends to entrench positions rather than allowing the flexibility that genuine change requires
What Makes Engagement Succeed
Research by the Investor Forum identifies six key success factors:
- Clear objective, specific and targeted, so both sides know what delivery looks like
- Material and strategic, linked to issues that genuinely affect the company's long-term value
- Bespoke, tailored to the specific target company, not a generic template
- Effective leadership, a lead engager with the right relationships, skills, and knowledge
- Scale of coalition, meaningful combined shareholding and AUM, especially for collaborative engagements
- Depth of relationship, prior relationship and cultural awareness of the target company
The first three factors matter most for individual engagements. The last three become more determinative when multiple investors are trying to coordinate.
Fixed Income Engagement
Equity investors are not the only ones who engage. Bond investors can also press for ESG improvements, though their levers are different. The most powerful moment for fixed income engagement is at new issuance: when a company comes to market with a new bond, it needs buyers, and investors in the deal can make ESG expectations explicit as a condition of participation. During debt refinancing or the issuance of a green bond, bondholders have direct influence over covenants, reporting requirements, and the environmental use-of-proceeds criteria embedded in the instrument.
Resource Constraints and Service Providers
Resources are one of the most significant constraints on engagement. Even large fund managers hold thousands of companies, and meaningful engagement across all of them is simply impossible. Responses to this constraint include:
- Building specialist stewardship teams, dedicated professionals whose sole focus is engagement and voting
- Enabling portfolio managers to carry stewardship responsibilities alongside investment management
- Using collective vehicles, commercial stewardship overlay services (Federated Hermes EOS, BMO Global Asset Management, Robeco, Sustainalytics) and non-commercial platforms (UK Investor Forum, PRI Collaboration Platform)
- Prioritising carefully, concentrating effort where value is most at risk or most improvable
Stewardship codes consistently emphasise the need to manage and disclose conflicts of interest. These conflicts arise in several ways. A fund manager may have commercial relationships with companies it is also trying to engage, making it reluctant to adopt confrontational positions. A company selected for engagement or voting may be related to a parent company or subsidiary of the investor. Employees may have personal connections to investee companies.
The PRI notes: "Conflicts can arise when investment managers have business relations with the same companies they engage with or whose AGMs they have to cast their votes at. The disclosure of actual, potential or perceived conflicts is best practice."
Managing these conflicts requires explicit policies, transparent disclosure, and, where conflicts cannot be managed, recusal from the relevant engagement or voting decision.
Key Takeaways
- 1Collaborative engagement amplifies influence - when multiple investors with material combined shareholdings express the same concern, companies are far more likely to respond than to a single voice
- 2Top-down engagement casts a wide net across holdings on a systemic issue like climate risk, while bottom-up engagement goes deep on a single company's specific vulnerabilities - most institutions use both
- 3A concert party is the most formal and highest-risk collaborative engagement - acting in concert triggers mandatory takeover bid rules, so coalitions must be structured to avoid binding coordination
- 4Say on Climate votes give shareholders a formal annual opportunity to signal whether a company's climate transition plan is credible, with a significant vote against sending a powerful public signal
- 5The most powerful moment for fixed income engagement is at new issuance, when a company needs buyers and investors can make ESG expectations explicit as conditions of participation
- 6Six key success factors for engagement are clear objectives, material and strategic issues, bespoke approach, effective leadership, scale of coalition, and depth of relationship with the target company