Engagement Dialogue

Engagement is the investor’s direct dialogue with an investee company in order to address an ESG issue. It is a long-term process lasting several years, depending on the complexity of the issue. The objectives are improvements in governance and management structures, policies and/or specific measures to address the ESG issue at stake. Negative impacts on nature, human lives and society must cease, be remediated and be prevented from reoccurring. A successful engagement can strengthen a company’s ability to take into account future ESG risk and increase its long-term value for investors.

Several recent studies commissioned by the Swiss Federal Office for the Environment highlight engagement as a particularly valuable strategy for achieving a positive impact on climate. Moreover, a number of academic studies show a correlation between engagement and a company’s long-term success, for example Dimson, Karakaş & Li: Active Ownership (7 August 2015) or Hoepner, Oikonomou, Sautner, Starks & Zhou: ESG Shareholder Engagement and Downside Risk (10 August 2018).

The members of SVVK-ASIR are convinced that engagement – the direct dialogue with companies in which they are invested – is a compelling strategy for inducing positive social and environmental change while increasing long-term value for investors. However, exclusion and subsequent divestment is a legitimate course of action as a last resort. The decision to recommend a company for exclusion is taken by the SVVK-ASIR Responsible Investment Committee (RIC) and is made public on this website.

No. Companies can violate the normative basis both with their products (business lines), and with how they operate (business conduct). In the first case, SVVK-ASIR excludes several producers of controversial weapons and their affiliates, referencing its normative basis, notably the Swiss Federal Act on War Material (SR 514.51). In the second case – commonly referred to as ‘conduct-based violations’ – SVVK-ASIR seeks to enter into a targeted dialogue with the company in question. However, if this dialogue fails to result in meaningful change, SVVK-ASIR reserves the right to recommend exclusion.

In line with the recommendations of the Organisation for Economic Co-operation and Development (OECD), SVVK-ASIR prioritises the cases that are severe and systematic in nature:

• Severe: Violations of the normative criteria that are very significant in scale (gravity of impact), in scope (reach of impact) or in their irremediable character.
• Systematic: A pattern of repeated violations of our standards that indicates a systematic management failure, the tacit permission of abuses or even intent. In other words, systematic means that the violation is not the result of individual misconduct or an isolated accident.

An overview of the companies with which the SVVK-ASIR is in an engagement dialogue due to allegations of serious and systematic violations of the normative basis can be found here. In addition, the SVVK-ASIR conducts a specific climate dialogue with other companies.

Yes. Company engagement objectives are set after a three month evaluation period during which a fact-finding dialogue with the company takes place. The purpose is to establish the company’s accountability and identify potential shortcomings that have led to the violation. The engagement target is formulated to address these shortcomings and is communicated to the company. Engagements are evaluated quarterly based on the quality of the dialogue and the progress in addressing the identified issues.

We regularly review all engagements we undertake. The Responsible Investment Committee (RIC), consisting of member representatives, evaluates company’s progress towards the engagement target on a semi-annual basis. If there is no progress for 12 months or longer, the committee performs an in-depth review. It may decide to issue a letter to the company, which marks its readiness to recommend the company for exclusion. Addressing the CFO or CEO, the letter contains a final invitation to enter into a dialogue, includes a deadline for response and signals the possible consequences.

If the communicated deadline passes without a valid response from the company (which must lead to a constructive dialogue), SVVK-ASIR will recommend the company for exclusion as a last resort. The list of companies recommended for exclusion is updated and made available to members and the public. It is important to note that the decision to adopt the recommendations and the modalities of the divestment remain entirely the responsibility of each member.

We may recommend the re-inclusion of previously excluded companies under certain conditions; this is reviewed on a semi-annual basis by the RIC based on information from our research partners. These conditions are: a positive track record of at least two years during which the company has made significant and robust progress to address the issue at stake; and no involvement in any other severe and systematic breaches.