Dutch Authority for the Financial Markets research finds engagement in sustainable investing is hard to measure and calls for clearer value case and sharper focus

The Dutch Authority for the Financial Markets has published research on how asset managers implement engagement with investee companies and how effective it is within sustainable investment strategies. It finds that engagement effectiveness is difficult to demonstrate, but concludes it can still be a valuable instrument and that there is room to clarify and better substantiate the value case. The AFM notes that engagement is resource-intensive and that asset managers and academic research often view effectiveness differently, with firms relying more on a theory of change than on objectively measurable effects. It points to more specific reporting as a way to strengthen the value case, including how engagement fits within the overall sustainable investment strategy, transparency on the engagement methodology and time horizon, whether engagement aims at risk management and or real-world impact, and the nature and quality of dialogue including seniority and whether it is outsourced. The research also highlights quality-over-quantity as a key success factor, suggesting that limiting engagement to a select group of companies and a small number of ESG themes can raise engagement quality, supported by credible escalation options and collaboration to increase leverage.