Relational Work for Sustainable Finance: Exploring the Political Dynamics of Shareholder Engagement on Environmental, Social and Governance Issues

A recent development in our context of ‘investor capitalism’ (Davis, 2009; Useem 1996) is the rise of practices of ‘active ownership’ or ‘engagement’ that move beyond proxy voting and takes the form of direct dialogue between investors and their investee companies on environmental, social or governance (ESG) issues. Finance scholars suggest that engagement on ESG issues can lead to positive abnormal financial returns (Dimson, Karakaş & Li, 2015); global institutions such as the United Nations–backed Principles for Responsible Investment actively promote engagement by enabling institutional investors’ collective actions targeting multinational corporations (MNCs) (Gond & Piani 2013).

However, because engagement takes place ‘behind closed doors’, little is known about the cognitive, social and political dynamics that underlie engagement practices. In this paper, we build on the concept of ‘relational work’ developed by Bandelj (2012) after Viviana Zelizer (2005) to investigate engagement from the perspective of the individuals involved in the process, and with the aim to uncover the profoundly relational and political nature of engagement. To document engagement practices, we conducted 112 interviews with actors in charge of engagement on ESG at institutional investors (n=66) and dealing with investors’ ESG requests at MNCs (n=36), as well as with field-level experts of engagement (n=10).

Our findings show that through engagement, new relations emerge between investment firms and MNCs that enable the symmetric consolidation of actors’ position and relations within their own organizations, enhancing further these actors’ capacity to engage in relational and political work for promoting sustainable development. By uncovering a neglected relational facet of investor capitalism and its complex connections with sustainability issues, our study extends the analysis of corporations as “open polities” (Weber & Waeger, 2017), allowing a discussion of the potential and limitations of relational forms of finance to move MNCs and investors towards sustainability.