'Engagement'

Engagement is concerned with negotiating better company practice and as such is to be welcomed. It has always been an integral part of an ethical investment policy. Having identified problem areas within a company, fund managers aim to persuade the company to commit itself to change and then monitor the implementation of any such commitments.

However, a 'Socially Responsible Investment' (SRI) policy of engagement alone is unacceptable to CAAT. Arms companies might well be challenged to clean up their act in some areas such as governance or reporting, but the process of engagement would not address the fundamental social and environmental problems that arise from the use of their products.

The attraction of engagement, if presented by fund managers as a SRI policy, is considerable. It allows councillors to believe that they have a SRI policy and they may be reluctant to hear information that will destroy their comfortable illusions.

However, CAAT supporters can remind councillors that they do have a duty to monitor the performance of their fund managers. There are a number of questions, listed below, to which councillors should expect to be given satisfactory answers:

• What issues have fund managers engaged on and with which companies?
• Are fund managers asking questions which will clarify company policy and practice, especially on the range of issues that are of particular concern to CAAT (such as exports, end-use, corruption, transparency, and diversification)?
• If a company does not respond positively, is there a point at which fund managers would decide to disinvest?
• Are fund managers willing to engage with companies on issues that would be ‘value destroying’ (i.e. where a change in company practice would reduce profit/share value)?
• How are the fund managers’ resources allocated for effective engagement? (It is time consuming and therefore expensive).
• How will the fund managers evaluate their engagement strategy?
• Do fund managers have answers to the above available on their website (and, if relevant, the company response)?
• Is the fund managers’ AGM voting record available on their website?

A note on Socially Responsible Investment

SRI is a vague term that can include:

Positive screening - where companies are selected because they fulfil certain, often environmental, criteria.
Negative screening - where companies or sectors of the market are avoided because they are felt to be unacceptable in some way.
Engagement - where fund managers may engage with management to identify problem areas within the company. Having reached agreement as to the problems to be resolved, they then monitor progress.