Although a growing number of investors are engaging with sovereign entities on environmental, social, and governance (ESG) issues, little academic research investigates this new form of investor activism. Applying universal ownership theory and drawing on eleven case studies of policy engagement, this article analyzes what drives institutional investors to engage with government entities and what challenges they find in the process. We identify a trend that investors conduct policy engagement to fulfill their fiduciary duty, improve investment risk management, and create an enabling environment for sustainable investments. As for engagement challenges, investors report the longer-term horizon, a perceived limited influence toward governments, the need for capacity building for investors and governments, the difficulty in accessing government representatives, and possible accusations of interfering with national sovereignty. This research contributes to the public policy and sustainable finance literatures and offers governments insights on the demands of the investment community.
Keywords: Shareholder engagement, dialogue, shareholder activism, climate risk, climate change, environmental social and governance (ESG), public policy engagement, sovereign engagement, sustainable finance, universal ownership