Active Ownership: How Investors Are Driving ESG Change from Within

Active ownership is no longer an option—it’s a strategic imperative. Investors are increasingly recognizing that robust Environmental, Social, and Governance (ESG) practices drive long-term business performance, from reducing risk to uncovering new growth opportunities.

Rather than simply excluding underperforming ESG assets, asset owners and clients now expect investment managers to use their influence to create tangible ESG outcomes. This is done through a proactive approach that includes engagement, dialogue, and proxy voting—tools that can shape corporate behavior from the inside out.

Firms that lead on ESG not only outperform peers but are also better equipped to navigate market shifts. Active ownership has become a core strategy for delivering both competitive financial returns and real-world impact.

Active ownership involves leveraging investor influence to change corporate behavior on ESG issues, moving beyond traditional screening or divestment. This shift is driven in part by regulations such as the UK Stewardship Code and the EU’s Sustainable Finance Disclosure Regulation (SFDR), which require transparency in engagement practices.

The PRI notes that investors increasingly favor engagement over divestment, as it leads to more enduring improvements. Today’s asset managers are expected to work with—and not against—portfolio companies, to improve ESG performance and address systemic risks.

This includes direct interaction with companies—through meetings, written correspondence, and collaborative efforts—with clear ESG goals in mind. Investors often escalate their actions when progress is lacking. Initiatives such as Climate Action 100+ amplify this impact by uniting investors around shared climate goals.

Proxy voting reinforces engagement efforts by holding boards accountable on executive pay, ESG disclosures, and sustainability strategy. In 2023, U.S. investors filed over 600 ESG-related shareholder proposals, with growing support from major asset managers.

By engaging companies, institutional investors can reduce risks associated with poor governance, misconduct, or regulatory non-compliance. For instance, investor-led climate engagement has pushed over 70% of the world’s largest emitters to commit to net-zero goals—reducing transition risk and potential stranded assets.

Active engagement around social and governance issues—such as labor rights or data privacy—also lowers the likelihood of controversies. Harvard research shows that companies with strong ESG engagement experience less volatility after negative events compared to peers.

Read more- Demystifying ESG Ratings: A Guide for Investors

Investors managing $68 trillion under Climate Action 100+ engaged Shell to align with Paris goals. The result—Shell committed to net-zero by 2050 and began tracking Scope 1, 2, and 3 emissions against clear milestones.

Through its Fearless Girl campaign, State Street committed to voting against boards without female directors. By 2022, 1,500 companies had added women to their boards, proving that engagement and proxy voting can reshape governance norms.

NBIM’s divestment from a Xinjiang-linked clothing firm in 2022 sent a strong signal on labor rights. Its public stance prompted broader reforms in supply chain accountability across the apparel sector.

These codes provide structure and accountability. For example, the UK Stewardship Code outlines expectations around ESG engagement and transparency. Following such codes signals to clients and stakeholders that ESG is being taken seriously.

Investor coalitions such as Climate Action 100+ enable institutions to pool resources, share insights, and amplify influence. Joint efforts strengthen engagement outcomes and industry-wide impact.

The PRI and other frameworks require reporting on ESG strategies and outcomes. This creates accountability and reinforces trust among stakeholders and clients.

Read more- A Guide to ESG Proxy Voting Services for Responsible Shareholder Engagement.

Reliable data is essential for evaluating performance, identifying risks, and prioritizing engagements. Third-party providers offer standardized, timely insights to inform active ownership strategies.

These tools help investors record meeting outcomes, monitor company progress, and coordinate engagement across portfolios—ensuring that efforts are strategic and consistent.

Centralized dashboards improve oversight of voting behavior and align votes with ESG goals. They allow investors to identify patterns and refine strategies over time.

Comprehensive systems integrate ESG data, engagement history, and voting activity into a unified interface—offering a full view of institutional impact and driving operational efficiency.

Global inconsistencies in ESG regulations and definitions hinder unified engagement. Investors must tailor strategies to local conditions while supporting global convergence on ESG standards.

Data gaps, especially in emerging markets and among smaller firms, limit investors’ ability to assess ESG risks and performance. Collaborating with ESG data providers and pushing for disclosure can bridge this gap.

Engagement often involves upfront costs that may impact short-term returns. However, long-term value creation through ESG improvement enhances resilience and aligns with client expectations.

Active ownership is now a defining feature of responsible investing. As regulations evolve and stakeholder expectations rise, financial institutions have both the responsibility and the opportunity to lead from within.

Engagement and proxy voting are no longer fringe activities—they are key levers to driving meaningful change. By combining strong internal systems, collaborative platforms, and data-driven strategies, investors can align fiduciary duty with long-term sustainability, creating value for both clients and society

• Climate Action 100+ Net Zero Company Benchmark shows continued progress on net zero commitments is not matched by development and implementation of credible decarbonisation strategies
• Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreement
• Fearless Girl: Creating Gender Diversity in the Workplace
• Norway’s wealth fund excludes Chinese sportswear maker Li Ning
• Investors welcome net zero emissions commitment with Shell