Engagement drives sustainable change

Representatives from ABN AMRO recently sat down with a board member from a major European oil producer to discuss the multinational’s transition to sustainability. Although the company has a sustainability strategy, ABN AMRO and other shareholders felt it wasn’t showing results fast enough. “This is an example of how the bank, as an active shareholder, is working to accelerate sustainability” says Vincent Triesschijn, Global Head of ESG and Sustainable Investing at ABN AMRO.

Engagement as a tool

Engagement often starts in collaboration with an external asset manager selected by ABN AMRO Investment Solutions (AAIS) that manages a portion of the assets invested by ABN AMRO on behalf of its clients. “In these cases, we outsource the management of the portfolio and engagement, but as a shareholder, we keep the voting rights,” says Margot Seeley, Head of ESG at ABN AMRO Investment Solutions. “We work very closely with these asset managers,” she continues, “and rely on their in-depth sustainability knowledge of companies.”

Vincent says, “Engagement is a tool that we have as a shareholder and can eventually lead to positive social change, especially when we work together with other professional investors. AAIS recently published its Stewardship Report 2023, which highlights a number of these joint engagement initiatives with companies such as Volkswagen, Apple and the UK publishing group Pearson.

Divestment: a last resort

Engagement is an important part of ABN AMRO’s sustainability strategy. On behalf of its clients, the bank invests in companies that prioritise people, planet and society in their operations. If a company isn’t moving fast enough in the right direction or fails to meet its sustainability targets, the bank can always sell the stake in the company. “It’s important to emphasise that we prefer the path of engagement,” says Vincent. “Selling our stake in a company really is a last resort, as it means we no longer have the opportunity of engaging with its management. It’s also unclear whether divestment actually leads to demonstrable change in organisations.”

It’s worth noting that ABN AMRO does not invest directly in companies or sectors whose activities are not in line with the bank’s sustainability policy, such as the tobacco industry or manufacturers of controversial weapons.

Open to dialogue

Vincent continues, “At most companies, management teams are open to discussing sustainability, are very interested in investors’ questions and views, and are often willing to revise their strategies where necessary.” The bank’s position on sustainability also carries weight in other ways, as Margot explains: “Companies know that if shareholders don’t feel heard, they’re likely to vote against reappointment of the board at the next AGM.”

A broad perspective

Many of the bank’s engagement processes focus on decarbonisation – getting companies to reduce their carbon footprint is currently front and centre among professional investors like ABN AMRO. But it’s certainly not the only issue, says Vincent: “We take a very broad perspective when looking at the transition to sustainability.” Another important area of engagement is corporate governance. The bank doesn’t shy away from challenging companies on the remuneration paid to senior executives, for instance if an increase is out of line with that of other employees or if there are inexplicably large gaps between them.

Vincent continues, “We also think it’s important to talk to management about controversies concerning biodiversity and working conditions.” The latest Stewardship Report details the results of engagement with a manufacturer of solar panels where employees in the supply chain were forced to work in conditions that violated their universal human rights. Following engagement carried out by asset manager Aegon Asset Management, the company took concrete steps to address the situation in its supply chain.

Effective but time-consuming

While engagement has proven to be an effective tool, it can also be time-consuming, says Margot. In fact, three years is not uncommon. And its success isn’t guaranteed. Engagement always follows certain steps to achieve the best results and ensure the effective monitoring of progress. “An incident or controversy at a company often triggers an engagement process,” says Margot. “Or perhaps the investor wants to steer a particular company in a more sustainable direction. The first step is to sit down with representatives from the company and gather information to help define the various steps and commitments in order to make the necessary changes.”

However, a seat at the boardroom table doesn’t necessarily guarantee overnight results. Vincent says, “Companies and shareholders often have very different timelines when it comes to sustainability. Geopolitical developments, such as the war in Ukraine, have also made it more difficult for some companies to make the energy transition.” These aren’t easy conversations, he stresses: “Change is hard, but engagement can help get a company take the first steps.”

Achieving more together

Margot and Vincent are seeing more and more professional investors joining forces – there’s strength in numbers, they say. The bank’s own collaborative efforts include participation with over 600 other asset managers in Climate Action 100+, an investor network focused on driving sustainable change through dialogue with the boards of the world’s 100 largest listed polluters. ABN AMRO Investment Solutions is also a member of the international Net Zero Asset Managers Initiative (NZAM), a network of asset managers committed to aligning their investment portfolios with the Paris Agreement. Vincent concludes, “It’s just one more way we’re influencing companies to accelerate the transition to sustainability. The investments we make on behalf of our clients help future-proof companies grow and prosper.”