Our stewardship team, EOS, has clear and well-established protocols on how to identify engagement issues, to escalate an engagement and to measure an engagement's effectiveness. We develop corporate engagement objectives initially at the thematic and sector level based on a 'top-down' understanding of relevant thematic and sector risks. These are then reconsidered at the company level ('bottom up') for materiality and feasibility, together with our company-specific knowledge on how well the risks are being managed. We then plan our approach to engagement, including how best to develop existing and new relationships with corporate representatives, seeking always to develop our relationships with the most senior management and board members where possible.
Engagements with companies will normally relate to longer-term strategic, environmental, social or governance issues. Generally, our engagement activity becomes more active where we believe:
engagement will lead to an increase in the value of a company over the long term; and/or,
engagement will prevent or limit a decrease in the value of a company over the long term;
engagement will address an externality that the company produces and thereby enhance the company's social licence to operate.
In prioritising engagements and determining whether and how the engagement is taken forward, due regard is given to:
the level of the company's exposure to the issue at hand (materiality);
the likelihood of engagement success and potential to bring about positive change; and,
the value of our clients' ownership of the company (value at risk).
Such considerations are based around an assessment of the likely impact of the engagement and the ultimate benefit to the value of the underlying holding. Each engagement is subsequently given an appropriate intensity tiering.
Our rolling three-year engagement programme is developed annually in conjunction with our investment teams and EOS clients and reflects evolving changes in the market and regulatory environment in different countries and sectors.
In 2019, EOS engaged with 366 companies as part of its engagement plan and a further 677 companies where engagement opportunities were identified on ad hoc topics, typically around voting at the annual general meeting.
Our engagement team is organised by a combination of thematic, sector and geographic responsibilities, as some environmental, social and strategic business issues share sector characteristics, whereas governance and stewardship principles often display country-specific differences.
We regularly engage companies collaboratively with other investors on material ESG issues. This usually happens through networks such as, for example, the PRI, IIGCC, Climate Action 100+, GIGN, ICGN amongst others.