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Engagement process explained

Date: 07 July 2023

8 minute read

As a responsible investor Quilter Cheviot is committed to its role as a steward of clients’ assets to protect and enhance long-term returns. Engagement is a cornerstone of this approach and integral to our investment process.

Engagement results are not always obvious. It can be difficult to accurately measure progress. Changes in practices can stem from multiple conversations often spanning several years or, with multiple investors engaging the company on the same subject, it can be difficult to pinpoint which conversation nudged the company to a tipping point. Attributable outcomes can be more obvious, particularly in companies, investment trusts and funds where holdings are sizeable, or if the company highlights the role your engagement played. Despite the difficulties in claiming bragging rights, engagement outcomes are tangible and when investors undertake dialogue with investee holdings, whether individually or collaboratively, we can see investor-led change happening – as can be seen in the 40% of FTSE 100 board positions now held by women (10 years ago it was 12.5%) or the proliferation of company net-zero commitments. For us, it is a constant and ongoing process which lies at the core of our approach to investing responsibly.

The role of engagement can be overlooked as it is not factored in within the proliferation of ESG (environmental, social and governance) ratings published by third party providers. However, it is integral to a thoughtful and authentic responsible investment process.   

How we do it

Engagement means speaking directly to companies and investment trusts regarding issues that concern us, as well as providing an avenue to develop a deeper understanding of their general approach to material ESG issues. The process can be reactive or proactive and runs alongside our ongoing monitoring activities.  For the funds we hold, we engage with managers on the quality of ESG analysis processes, their active ownership work (voting and engagement), signatory status to the UN backed Principles for Responsible Investment as well as attestations for active managers in regards exposure to controversial weapons (cluster munitions and anti-personnel landmines).

In 2021, we voted at over 300 company meetings, voting against management on a range of topics from executive remuneration to re-election of directors, and supporting numerous shareholder resolutions on improving reporting on social and environmental issues. We usually engage with the company ahead of taking the decision to vote against management.


Reactive engagement occurs in response to a company-specific event, such as an AGM/SGM resolution of announcements relating to remuneration or other policy consultations. These are essentially red flags raised by developments within a company or industry and a response to events that have already occurred.


Proactive engagement is more forward looking and involves looking for issues before they have patently manifested. For instance, this could involve conducting analysis on a specific topic, such as climate change, then looking to engage with the worst performers. This process plays a larger role in our thematic engagement.

On an ongoing basis we monitor developments through regular conversations.


As well as taking an incident and risk-based approach to engagement prioritisation, we have also declared a list of three thematic priorities that play a significant role in where we focus our attention: climate change, people and human rights and water. We adopt a long-term approach, and our key themes are a work in progress - we expect the areas of focus within these themes to evolve over the coming months and years.

Our responsible investment team identifies areas of specific focus within the three broad groups mentioned above. These are then put before our engagement panel, which includes representatives of the research and executive teams, to verify for agreement. In 2021/22 preliminary areas of focus include carbon emissions and board diversity. Outcomes, as well as further engagement details, are disclosed quarterly on our website.

In addition to proprietary research, we use multiple external data sources to identify engagement targets and inform our dialogue. At the time of writing, these are ISS, Sustainalytics, CDP and Ethical Screening. In addition, a multitude of publicly available data sources and reports are essential to informing the engagement process.


Our interaction with Tesla provides an example of reactive engagement, which also reflected one of our themes: climate change. We spoke to the company surrounding the 2021 AGM. There was a long list of items to cover including four shareholder resolutions. Our discussion focused on shareholder efforts to declassify the board, significant discretionary remuneration for board members, emissions reporting and conflict mineral sourcing audit and verification. Tesla also does not currently report company level scope 1, 2 and 3 emissions – something we raised. The company reports several product-based carbon emissions statistics; however, a commitment has been given to disclosure company level emissions in the next 12 months. This was a constructive conversation with further detail provided on cobalt sourcing audits and initiatives to improve diversity and inclusion. The company is relatively unusual in that directors are paid solely in equity grants – given share price performance over the past few years, remuneration has been significant. We registered this concern and encouraged the implementation of a structured performance-based policy to add transparency to the equity grant process.

We voted to support all shareholder resolutions on diversity and inclusion efforts, employee arbitration and creating an independent board level committee to oversee human capital management. We also voted against two directors on the board mainly in relation to remuneration concerns.

Rio Tinto is an example of proactive engagement linked to the climate change theme. Rio Tinto has set ambitious, detailed plans for reducing scope 1 and 2 emissions. The company reports scope 3 emissions and the transparency on disclosures and difficulties faced on setting meaningful reductions targets in this area is noted. Much of the scope 3 emissions comes from steelmaking practices, particularly in China. The company has relatively little control over the practices of these clients or the energy mix in the grid providing power to these sites. Even with these limitations, it is encouraging to see the efforts the company is putting into working with clients to optimise processes and introducing new technology to bring scope 3 emissions down. It is difficult to assess the impact of such projects at this stage, but relative to other high emitting companies it shows action can be taken on scope 3 if there is willingness. That said, we encouraged formal target setting to be put in place for scope 3 emission.

This was an initial engagement to establish an opinion on transition plans. We would like to see further information on how these targets will be integrated in executive remuneration and believe there could be a case to further integrate metrics into the longer-term incentive, not just the annual bonus. Ongoing dialogue will be required.


Collaboration can enhance the effectiveness of engagement, and as such Quilter Cheviot is a member of various initiatives and trade bodies. The most relevant collaborations and memberships are with the 30% Club, which looks to promote gender diversity within companies, the UK Investment Association, UN Backed Principles for Responsible Investment (PRI) and Institutional Investors Group on Climate Change (IIGCC).

An example of this is the work we have undertaken as a lead engager, as part of the 30% Club investor group, we launched a collaboration to open discussions with leading executive search firms to assess their hiring practices when making women appointments to executive and board positions. This is still ongoing, but learnings will be aggregated and used in future company engagements.

A further example of our collaborative engagement came in 2021 when we joined the UK Modern Slavery Collaboration using the UN-backed PRI collaboration platform.

We were also among the first group of investors to become signatories to the revised 2020 UK Stewardship Code.


The desired outcome of engagement activity is to reduce risk and enhance prospects for the company and therefore our clients. Regular engagement arises from one-to-one and group meetings with company executives. Depending on the topics of discussion, meetings are also held with the company chair and chair of remuneration committees while in specific instances we will request a meeting with the senior independent director, if we believe this will be helpful.

Where we perceive a threat to the value of the company, we will take the necessary steps to protect our clients’ investments. Beyond individual dialogue measures of escalation include collaborative engagement, voting contrary to management at general meeting and selling the holding where we evaluate it is in the best interest of our clients. In extreme circumstances, we could request a general meeting.

Active ownership is not a simple approach, multiple engagements are often required, and patience and perseverance are essential.

Any reference to any securities or instruments is not a personal recommendation and it should not be regarded as a solicitation or an offer to buy or sell any securities or instruments mentioned.

Greg Kearney

Senior Responsible Investment Analyst

Greg's role is to ensure Quilter Cheviot act as stewards of our clients’ assets in order to protect and enhance long-term returns. A significant part of his work is engaging with companies and funds to better understand how they assess environmental, social and governance risks.

Responsible investment

At Quilter Cheviot we see responsible investment as a process that analyses ESG data to help inform investment decisions and to ensure that all relevant factors are accounted for when assessing risk and return.

Find out more about Responsible investment

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