What strategy is used by an investor to improve a company's sustainability through dialogue?

• A. negative or exclusionary screening
• B. engagement strategy
• C. proxy voting
• D. impact investing

Answer: (B)

The engagement strategy is utilized by investors to improve a company’s sustainability through constructive dialogue. This approach involves actively communicating with portfolio companies on environmental, social, and governance (ESG) issues. Through this dialogue, investors aim to influence corporate practices and decision-making, encouraging companies to adopt more sustainable and responsible behaviors.

This strategy often includes discussions around setting sustainability goals, enhancing transparency, and improving reporting practices. Engaging with management teams, board members, and key stakeholders allows investors to advocate for changes that align with sustainability principles, thereby promoting long-term value creation for both the company and its investors.

Other options, while related to responsible investing, serve different purposes. Negative or exclusionary screening involves avoiding investments in companies that do not meet certain ethical criteria, which does not engage with those companies to instigate change. Proxy voting is a mechanism through which shareholders vote on corporate matters, but it often does not involve direct dialogue. Impact investing focuses on generating measurable positive social and environmental impacts alongside financial returns, which is distinct from the dialogue-centric approach of engagement.