Institutional investor engagement and sustainable finance

TThis chapter briefly introduces the concepts of shareholder engagement and stewardship and their relevance in the practice of shareholder-issuer relationships and analyses the relevant EU regulatory framework underpinning private dialogue as a tool to promote active share ownership. It then focuses on sustainable investing as a driver of institutions’ engagement, and the new disclosure obligations imposed on them by the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation. It discusses issuer disclosures under the Non-Financial Reporting Directive (now amended by the Corporate Sustainability Reporting Directive) and the Corporate Sustainability Due Diligence Directive, mainly from the standpoint of institutional investors as the primary users of corporate sustainability information. The chapter then provides an analysis of the incentive structures typical of (different kinds of) institutional investors as a foundation based on which to evaluate, by also taking account of a number of further factors, largely independent of the asset managers themselves, institutions’ actual readiness, and ability, to effectively take on the stewardship role they are assigned by the EU.