How shareholders are learning to say "Yes, but"

 Socially responsible investors have long practiced the art of saying no. Now, many are learning that saying "Yes, but" can be just as effective -- and sometimes even more so.           

A growing number of investors are using the power of share ownership to engage management in dialogue about corporate practices. Their reasoning: environmental, social, and governance (ESG) issues can pose material financial risks to companies, and therefore shareholder value may be affected.

Several hundred institutional investors totaling over $1.5 trillion in assets have filed nearly 2000 resolutions in the past few years, and through this work have persuaded numerous companies to make changes from better disclosing climate risk to allowing employees to unionize.

Such moves take socially responsible investing (SRI) beyond the standard strategy of steering clear of certain sectors (like tobacco, military contractors, nuclear power) and corporate practices SRI investors find ethically objectionable (like emissions or poor governance).

While SRI investors are generally comfortable not owning companies in industries such as fossil fuels and gambling, or that engage in objectionable practices in the areas of environmental impact, workplace diversity, and human rights, non-ownership doesn’t facilitate changes within those companies.

Shareholders want to know which companies are leading the way towards responsibility and accountability, and which ones are resistant. More and more investors want to invest in companies that can turn a profit without comprising the health and welfare of people or degrading the environment that supports our communities and economy. And those investors are becoming increasingly willing to encourage the laggards to embrace corporate responsibility.

Next page: Why shareholder resolutions should be a last-ditch effort