Our engagement activities are prioritised based on our exposure to the individual companies, either by the total size of assets invested on behalf of clients or by the percentage of shares held and the materiality of the issue that we identify.
As part of our analysis of companies, we track areas of performance, including companies' management of key ESG areas. If we feel we do not have enough information on this, or have identified gaps in companies' awareness or management of their ESG risks and opportunities, we establish dialogue with that company. Our equity, fixed income, ESG and data teams frequently work together to identify areas that warrant discussion with companies. This may happen pre or post the decision to invest, and will feed into the investment decision.
We also undertake re-active engagement as a result of any controversy involving a company, in order to understand why it may have occurred, the actions the company is taking as a result, and what the current and future investment risks may be.
Finally, to ensure that we consider all potential ESG concerns, we examine the external ESG ratings for our portfolios on a quarterly basis. Companies with a downward trend in ratings may indicate potentially higher ESG risk and therefore be flagged up for further engagement.
We have tracked all of our engagement activity through our internal ESG database since 2000. This enables us to assess if companies have responded to our requests for change. Our data shows us that on average it takes two years to effect change, but we have historically had a high level of success. This data base also flags engagements that are due for review and follow up, which we hope will increase our success rate.
We report publically on the success of our engagement activity over time. Please see our annual sustainable investment report for detailed information on our engagement progress at https://www.schroders.com/en/sysglobalassets/about-us/sustainable-investment-report-annual-2018.pdf