At a recent conference on impact investing, a fellow attendee asked me a question about navigating entry points in impact investing at a foundation whose board was concerned about risking financial returns in exchange for impact. There’s plenty of evidence that seeking impact does not have to mean compromising return (and, in fact, some foundations have recently reported outsized returns among mission-aligned portfolios). However, what occurred to me in that moment was that shareholder engagement should be low-hanging fruit for foundations — especially those looking to have an impact with their investments without making dramatic changes to their portfolios.

Shareholder engagement offers an opportunity to use the investments you already own as a lever for motivating companies to improve their impact on people and the planet. Yet shareholder engagement is a tool infrequently used by foundations, seemingly due to opacity around how to engage and the resources needed to do so. A 2022 report from Confluence Philanthropy pointed to a lack of understanding, confusion about pathways to engagement, and concerns about capacity constraints as key barriers, while also noting that with the right resources and partners in place, “active ownership is a rewarding, efficient, and cost-effective means for addressing significant societal problems.”

Until a few years ago, the Woodcock Foundation was a good example. The foundation had made a commitment to 100% mission alignment, and we were steadily making progress using a variety of tools, including catalytic capital and PRIs, thematic private investments, an impact bond strategy, and the incorporation of social and environmental scoring, tilts, and divestment in its public equities portfolio. Then, during an investment meeting of the Woodcock Foundation a few years ago, a senior member of the investment advisory team commented that shareholder engagement was one of the most effective tools for achieving impact in public equities. In response, we inquired about the role the foundation was playing as a shareholder and where it could engage more deeply. This was the beginning of a learning journey for us that, within a year, turned into meaningful action.

So, what is shareholder engagement, and why does it matter?

First, let’s talk about the rationale shareholder engagement. Public markets are substantially larger than private markets, and the typical foundation endowment has its largest allocation to public equities. Woodcock’s investment policy statement, for example, targets a 53% asset allocation to public equities and real estate. There’s a debate in philanthropy about whether ESG funds and other screened public equity funds can be considered impact investments. Regardless of where you land on this debate, it remains true that you can have an impact with public equity holdings through shareholder engagement. Often, it looks more like harm reduction than an increase in positive impact — but given the scale of many public companies, this harm reduction can be significant.

For example, the Woodcock Foundation sponsored a resolution with Conagra that sought greater disclosure of pesticide use in their agricultural supply chains, which have harmful effects on human health, pollinators, and the environment. The resolution was successful in spurring change. Conagra and shareholders came to an agreement that involved a company commitment to reduce the risks related to supply chain pesticides, including biodiversity loss and water quality and to share details on supply chain sustainability plans.

Let’s turn to the process of shareholder engagement. A shareholder resolution is a proposal submitted by shareholders that asks the company to take, or not take, a particular action. A shareholder resolution doesn’t necessarily have to do with mission and impact investing; these resolutions generally relate to an activity or behavior of the company that shareholders want to change to make the company more successful — often more profitable. However, the goals of shareholder resolutions can and often do align with the goals of mission-driven asset owners such as foundations.

Common themes of shareholder resolutions relate to executive compensation, corporate political spending, the impact of supply chains on climate and human rights, and more. Any shareholder who has owned at least $2,000 worth of stock in a company for at least 3 years can sponsor a resolution. If the stock has been owned for two years, the threshold is $15,000, and if it’s only been held for one year, the threshold rises to $25,000. Once a resolution is filed, the process for voting on it is called proxy voting, and every shareholder in a company can vote their proxies on resolutions ahead of the company’s annual meeting.

The goals of shareholder resolutions can and often do align with the goals of mission-driven asset owners such as foundations.

Much of the work related to shareholder engagement happens in between filing and voting. After filing a resolution, shareholder advocates — such as representatives from foundations and other institutions, or representatives of shareholder advocacy nonprofits like As You Sow — often reach out directly to corporate leadership to have a conversation about actions they’d like the company to take. If the dialogue results in agreement by the company to move forward with some or all the actions requested in the resolution, the advocate may withdraw the resolution before the vote happens and consider the engagement a success.

For example, last year a resolution was filed with AT&T regarding transparency on the company’s political spending. AT&T came to an agreement with shareholders to share information on how its political contributions align with the company’s stated political engagement priorities, such as expanding access for underserved and remote communities, using technology to help find climate solutions, and opportunities for meaningful employment. That disclosure becomes an accountability mechanism for shareholders and customers alike. Because a successful agreement was made before the vote, the resolution was withdrawn before the annual meeting.

Shareholder advocacy can also take place in the absence of a resolution. Advocates can take the approach of engaging directly with corporations before filing a resolution, and if the dialogue is productive, a resolution may not be necessary. The constellation of activities that includes direct engagement with corporate leadership, filing shareholder resolutions, advocating for those resolutions, and voting proxies is often referred to as active ownership.

What is the role of foundations and other institutional investors, and who else is involved?

Foundations, which are guided by a mission and exist to serve the public good, can and should be active owners. For institutional investors like foundations, the managers and advisors you work with are likely making voting decisions for you. The managers generally follow a set of voting guidance produced by other institutions, which incorporate different types of sustainability analyses into their guidance. Institutions looking to align their voting behavior with their mission can give those advisors and managers directions to vote on your behalf in alignment with your mission.

A very easy entry point into active ownership is to ask your advisors what voting guidance your managers are following, find out what the options are, and update your proxy voting habits to better align with your mission. This can be as simple as a couple of conversations with your investment advisor. In the case of the Woodcock Foundation, once we asked the question our advisors quickly came back to us with options, and we asked our managers to switch from voting our proxies based on standard guidance to socially responsible investing guidance. We’re now in the process of considering additional options to add custom guidance that will further align our votes with our mission.

When it comes to shareholder engagement beyond proxy voting, the approach — and the resources entailed — varies quite a bit. Shareholder advocates play a critical role, and some foundations, such as the Nathan Cummings Foundation, have built impressive internal capacity to write and file resolutions and advocate for their approval through engaging corporate leaders and other shareholders. This of course takes time, expertise, and financial resources.

Shareholder advocacy can also take place in the absence of a resolution.

Meanwhile, there are other organizations who take on shareholder advocacy as a core activity, and foundations with limited capacity can leverage their assets to play an important support role in the shareholder advocacy ecosystem. In the examples of As You Sow filing resolutions with AT&T and with Conagra, the organization did not own shares in either company. The resolutions were written and filed by As You Sow on behalf of the Woodcock Foundation; in other words, we allowed our shares to be used to sponsor resolutions to unlock As You Sow’s ability to proceed with their engagement. For the foundation, the process was very straightforward and required no resources other than a small amount of staff time, since we already owned the stock.

A call for foundations to engage

The outcomes of shareholder engagement are sometimes dramatic but often incremental. When influencing a large company, even incremental change can be meaningful. Going back to the Conagra example, plans to report on and reduce the harmful impacts of pesticide in their supply chain can significantly improve health and environmental outcomes for many people and communities. Moreover, the outcomes of shareholder activism often build on one another and create opportunities for other movements to play a role.

Looking at the AT&T example, corporate political spending disclosure can create the basis for social movement organizations to create accountability campaigns for companies that fund politicians to oppose reproductive healthcare access for women, environmental protections, and more. And finally, shareholder engagement is a rare democratic lever within capital markets. Every shareholder can vote, and those votes send meaningful signals to companies. In these ways, even incremental gains can be powerful drivers of impact and accountability.

Embracing active ownership should be the norm for foundations. Without changing investment holdings, and with very little additional capacity or resources (a bit of board discussion and a small amount of staff time), foundations can have an impact with their public equities portfolios by voting their proxies in alignment with their mission and sponsoring aligned shareholder resolutions. You probably vote on election day; please vote your proxies too.