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Our three-pronged approach to engagement

Date: 26 April 2022

Engagement is a key pillar underpinning any thorough and comprehensive approach to responsible investment. It is an integral feature of our investment process and demonstrative of our commitment to protecting clients’ assets and enhancing long-term returns. Our engagement process can be reactive or proactive and runs alongside our ongoing monitoring activities.

Engagement means speaking directly to companies and investment trusts regarding issues that concern us, providing an invaluable avenue in developing a more complete understanding of their general approach to material ESG (environmental, social and governance) issues. Pursuing an active ownership role through engagement is one of our two central approaches to responsible investment, alongside analysing ESG data to better inform our investment decisions.

For the funds we hold we engage with managers regarding the quality of processes implemented in their ESG analysis, look at their active ownership work (voting and engagement) and signatory status to the UN backed Principles for Responsible Investment. We also focus on attestations for active managers relating to exposure to controversial weapons such as 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.

Our approach

Reactive engagement

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.

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. These refer to the ownership of emissions; with scope 1 covering direct emissions from owned or controlled sources, scope 2 relating to indirect emissions such as those from the generation of purchased electricity and/or heating, while scope 3 focuses on all other indirect emissions occurring in the value chain.

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 detailed 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.

Proactive engagement

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.

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.


In addition to reactive and proactive engagements, we monitor developments though regular conversations with companies as part of our ongoing monitoring process.

Opacity of results

Due to difficulties accurately measuring progress, engagement results are not always obvious. 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 – such as the proliferation of company net-zero commitments and the fact that 35%1 of Eurostoxx 600 board positions are held by women, up significantly from 12% in 2010 and 23% in 20162. For us, it is a constant and ongoing process which lies at the core of our approach to investing responsibly.

Though the role of engagement can be overlooked, often because it is not factored into ESG ratings published by third party providers, it is essential to a thoughtful and authentic responsible investment process.

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 company chair and chair of remuneration committees while in 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.

Download a copy of this article as a PDF.

1 2021-Gender-Diversity-Index.pdf (
2 Jourová, V 2016, Gender balance on corporate boards: Europe is cracking the glass ceiling, European Commission, accessed April 2022 from EU online

Eoin McBennett

Investment Manager

My primary role is to build and manage bespoke portfolios for clients including Charities, Corporates, Pensions and Private Clients. By assessing a client’s investment objectives including risk, return and income requirements, I am able to establish a suitable diversified solution.

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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