Trustees being able to engage with investee companies
For mission-led investors, the debate is often framed too simply: buy "good" companies and exclude the rest. Whilst it's a comforting narrative, comfort is rarely a reliable investment framework. Transitions can be somewhat hard to measure, and capital markets are not moral sorting mechanisms, however much we might wish they were. The real question for charities is not whether imperfection exists in portfolios, but how influence can be exercised once capital is committed.
Where influence is credible and change is achievable, engagement often proves more effective than exclusion. Far from being a soft option, it demands structure, patience and a willingness to act when progress stalls.
WHO ACTUALLY ENGAGES? Charity trustees do not, in practice, pick up the phone to company boards. Nor would that be effective. Meaningful engagement requires board-level access, sector expertise and, most critically, scale.
Significant capital
Companies respond to investors who represent significant, long term capital. Moral conviction alone rarely secures a board meeting. The ability to engage chairs and executive committees, to press for strategic change, and to escalate through voting where necessary depends in part on the weight of assets behind the conversation. A small shareholder, however principled, is unlikely to unsettle a boardroom on its own.
For that reason, stewardship – which includes engaging with companies on matters relating to good corporate behaviour, such as environmental, social and governance (ESG) issues – would best be carried out by investment houses or specialist providers with sufficient assets under advice to command attention and sustain dialogue.
Boards tend to listen when the capital behind the conversation is very large. Scale is not ornamental; it determines who is invited into the room. That standing enables engagement at board and senior management level and supports escalation through coordinated voting and collaborative initiatives where required. Where charity investors want stewardship their investment adviser will either be able to provide it directly or delegate it to a specialist provider.
Structured plan
It is also important to be clear about governance. One way of achieving this is for stewardship to have a structured, multi-year engagement plan covering defined environmental, social, governance and strategy themes. That plan would be client-informed through consultation, but individual trustees would not select specific companies or dictate company-by-company interventions.
Priorities would be determined by materiality, systemic risk and long term value creation, rather than by headlines or short term pressure, and then executed professionally.
So trustees can exercise influence by appointing managers with direct or delegated credible stewardship capability, by reviewing formal reporting on engagement progress, and by setting expectations around responsible ownership.
HOW CAN TRUSTEES BE CONFIDENT ENGAGEMENT IS WORKING? Confidence rests on structure and evidence rather than aspiration. So defining specific objectives for companies and tracking progress through a staged milestone framework is a good way forward. Engagement would be documented, monitored and revisited until an objective is implemented, discontinued as no longer material or escalated.
Escalation pathway
Engagement is not confined to conversation. Voting also forms part of the escalation pathway. So the stewardship provider would make engagement-led voting recommendations and have a clear record of voting against management where progress is insufficient.
Stewardship reports provided to clients would detail the themes addressed, the companies engaged and progress against objectives. This enables trustees to assess not only activity, but whether momentum is translating into tangible change.
HOW LONG SHOULD CHANGE BE ALLOWED TO TAKE? Engagement without time discipline risks becoming an annual exchange of pleasantries, recorded diligently and changing very little. Different issues require different horizons. Governance matters such as board composition or remuneration structures can, and should, show measurable movement within 12 to 24 months. These are decisions largely within board control.
More complex strategic transitions, particularly in carbon-intensive sectors or global supply chains, require longer. Moving from acknowledgement to a credible transition strategy and then to implementation may reasonably span three to five years. Structural change rarely conforms to quarterly reporting cycles.
Not open-ended
However, engagement is not open-ended. If a company refuses to acknowledge a material issue, fails to develop a credible strategy, or repeatedly stalls at early milestones, escalation follows. That may involve voting against directors, supporting shareholder resolutions or intensifying collaborative engagement.
Divestment sits at the end of that pathway. Engagement marks the beginning of a process with defined expectations, and where no credible route to improvement emerges, selling the investment becomes both legitimate and necessary. Patience has limits.
CAN ENGAGEMENT REALISTICALLY SUCCEED? Engagement works best where there is a functioning board, where management is responsive to long term capital providers, and where regulatory direction supports reform. It's strengthened by scale and by collective action, since companies are more likely to respond when significant pools of capital are aligned.
It is less likely to succeed where ownership is tightly controlled, where boards are insulated from external influence, or where there is little regulatory or market pressure for change. Recognising those limits forms part of fiduciary discipline. Engagement involves assessing leverage realistically rather than assuming goodwill will suffice.
INVESTING BEFORE CHANGE HAS OCCURRED. Perhaps the most difficult question for trustees is whether it's ever appropriate to invest in a company that is not yet aligned with their values but could improve. The answer rests on credibility and intent.
Credible pathway
A credible pathway to change means that the company acknowledges the issue, that oversight sits at board level, that measurable targets are being developed, and that management demonstrates both capacity and willingness to act. It also means that the investor has a realistic opportunity to influence outcomes through structured engagement.
Trustees should feel able to justify such an investment publicly on the basis of that pathway. Without it, the case for investing becomes difficult to sustain. Engagement must be grounded in forward-looking evidence and clear expectations from the outset, rather than optimism alone.
Equally, many of the sectors most critical to economic transition are imperfect today but essential tomorrow. Power generation, industrial materials, transportation and agriculture cannot be excluded wholesale without limiting the ability to influence their evolution. Exclusion may offer moral clarity, but it rarely alters the underlying economic necessity. In such cases, remaining invested under defined conditions may do more to accelerate change than stepping away.
EXCLUSION AFTER INVESTMENT – IMMEDIATE OR ULTIMATE DIVESTMENT. Exclusions have a role. For some charities, certain activities are incompatible with their objectives and are therefore non-negotiable. In other cases, excluding companies with no credible transition plan can provide clarity and preserve integrity.
However, exclusion as a first response often results in ownership transfer rather than behavioural change. Shares may move from long term, stewardship-focused investors to holders less concerned with oversight. Assets don't suddenly disappear when sold; they change hands, often into less engaged ones.
Systemic risks
For diversified, long term investors, systemic risks are a long term concern. Climate change, biodiversity loss and governance failures continue to affect the wider economy and therefore the portfolio as a whole.
THE COST OF STEPPING AWAY. It is sometimes argued that divestment increases a company's cost of capital and therefore forces change. In theory, higher financing costs can influence behaviour. In practice, the evidence is mixed and highly context dependent.
Public markets are adaptive. When engaged investors sell, the economic activity does not cease; ownership simply transfers. In some cases, assets move from public markets into private ownership, where transparency and accountability may be reduced and engagement becomes considerably more difficult.
Divestment therefore works best as the final stage of a structured escalation framework, rather than as a first reflex.
THE REALITIES OF TRANSITION FINANCE. The transition to a lower carbon, more sustainable global economy will require substantial capital investment over several decades. Many of the sectors central to that transition are currently high-emitting or operationally complex. Excluding them wholesale removes influence but leaves the economic reality untouched.
More relevant question
Capital will continue to fund these sectors. The more relevant question concerns the conditions attached to that capital.
Investors who remain engaged can advocate for credible transition plans, responsible capital allocation, improved governance and transparent reporting. Capital which withdraws forfeits that opportunity and the accompanying oversight.
Engagement, when structured and disciplined, recognises that economic transformation requires both financing and accountability. Capital deployed without expectations can entrench risk; capital deployed with clear conditions can help reshape it.
DISCIPLINE OVER IDEOLOGY. For charities, stewardship must remain anchored in fiduciary duty. The objective is to protect and enhance long-term value while addressing systemic risks that threaten both portfolios and mission delivery.
Climate risk, biodiversity loss, labour standards and governance failures carry financial implications that extend well beyond ethical positioning. They influence cash flows, asset valuations and economic stability.
Clear objectives
A disciplined engagement approach therefore requires clear objectives, measurable milestones, defined timeframes and a willingness to escalate, including ultimately divestment where progress proves unattainable.
For charities balancing financial resilience with real world responsibility, the distinction between exclusion and engagement carries strategic weight and practical consequences.
