It involves direct engagement with the companies in an investment portfolio whose reporting, environmental management, social track record or corporate governance give cause for concern.
Shareholder activism takes a three-step approach:
1. Opening a dialogue with businesses
By targeting companies where discussions could be most productive, shareholders can question management or the board of directors on ESG issues, such as the safety measures they take when transporting oil and gas and their approach toward surrounding communities.
The company may recognize that they need to make some changes, which may in turn have a domino effect on their competition. Other times, discussions may go nowhere because of resistance to change when faced with certain sensitive issues.
2. Resolutions at general meetings
If opening a dialogue doesn't work, a shareholder proposal can be put forward at the company's annual general meeting. Any shareholder with $2,000 or more of company stock* can file a resolution asking the company to improve their ESG practices.
The investment fund can act alone or form coalitions with other national or international organizations. The resolutions are voted on during the general meeting of shareholders.
The possibility of a vote is an important tool to motivate companies to make improvements. Once resolutions are put forward, they become public information, as do the results of the vote, which may draw media attention.
This tactic increases the pressure on the targeted company. And even if a resolution isn't passed, a dialogue on the issue at hand will have been reopened.
3. Exercising shareholder voting rights
During company shareholder meetings, investment funds vote on behalf of their shareholders on the proposals made by management and other investors. Under National Instrument 81-106, investment funds are required to make their voting policies and records available to Canadian investors.
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