The ownership of the common shares of a corporation gives the holder the opportunity to exercise various shareholder rights such as proxy voting, negotiations with management, and the sponsorship of shareholder resolutions. Shareholder engagement is the exercise of those rights to bring about positive change.
For the responsible investor, engagement, or shareholder engagement, can be broken down into three types of action: (1) dialogue with companies; (2) submission of shareholder resolutions; (3) application and maintenance of a proxy voting policy which outlines voting positions on environmental, social and governance issues.
(1) Dialogue is a form of corporate engagement involving ongoing exchange between company management and investors about financial, environmental and social performance and appropriate enhancements.
(2) Shareholder resolutions are a corporate engagement tool and long standing legal right whereby shareholders may formulate proposals for change in corporate policy and action, circulate them to other shareholders, and vote on them at a company’s annual general meeting (AGM). Whenever dialogue with a company fails to progress, SRI firms may seek support from other investors by filing a shareholder resolution on an environmental, social or governance issue.
(3) Shareholders have voting rights in the companies in which they hold shares. These rights enable them to vote on matters of corporate policy-making and composition of the board of directors. Proxy voting refers to the exercise of these rights devoid of commitment in terms of time and travel to attend shareholder meetings.