News 30/06/25

The role of engagement in sustainable investing

The Dutch Authority for the Financial Markets (AFM) has conducted an exploratory study on how asset managers carry out their engagement activities and how effective they prove to be. We find that effectiveness is difficult to demonstrate, but that engagement can nevertheless be a valuable tool within a sustainable investment strategy. Also, there is room for further clarification and substantiation of the value case for engagement. Finally, the limiting of engagement efforts to a select group of companies and focusing on a limited number of specific ESG themes can increase the quality of engagement.

In short

• Effectiveness is difficult to demonstrate, but engagement can be a valuable tool within a sustainable investment strategy.
• There is room for further substantiation of the value case for engagement.
• Focus can increase the quality of engagement.

Effectiveness of engagement

Engagement is an important tool for asset managers to implement their sustainable investment strategy. It requires considerable capacity and resources and is therefore a serious asset management activity. Practice and science view the effectiveness of engagement from different perspectives. The empirical-scientific perspective (logically) has a strong focus on objective measurability of effects. Asset managers focus less on this measurability. They tend far more to view their efforts from a theory-of-change perspective and judge their effectiveness accordingly.

Although effectiveness is difficult to demonstrate, engagement may contribute to a sustainable investment strategy. Specific ESG-promoting measures aimed at, for example, strengthening governance or the provision of information on a company's sustainability performance are useful, small steps forward and represent a push in the right direction. It seems logical to assume that such measures will ultimately have real-world impact – i.e. an improvement in the company's actual environmental and social footprint.

Insights for substantiating the value case for engagement

More specific reporting on engagement efforts can help to strengthen the understanding of the engagement value case. For example, it is important to clarify how engagement is embedded in the overall sustainable investment strategy. Transparency about the engagement methodology used is also essential: which theory of change is used with which time horizon? In addition, it helps to specify what the engagement activities are primarily directed at: only at managing financial risks or also at real-world impact? Finally, providing more insight into the nature and quality of engagement is of importance. For example, with whom do you conduct the dialogue and what is the degree of involvement in the dialogue?

Focus can increase the quality of engagement

Prioritising the quality of engagement efforts over quantity is shown to be a key success factor. Engagement is a knowledge- and capacity-intensive process, making it impossible for an asset manager to engage across the entire portfolio. The limiting of engagement efforts to a select group of companies and focusing on a limited number of specific ESG themes can therefore increase the quality of engagement. Other success factors include a credible threat of escalation if the engagement efforts do not lead to the desired result and entering into partnerships in order to exert joint influence.