Exclusions vs engagement: different tools, different governance needs
Exclusions define boundaries. Engagement defines a monitored process. Both can be credible, but they require different controls and evidence.
The distinction
| Exclusions | Binary control: “do not own”. Credibility comes from clear scope and consistent enforcement. |
|---|---|
| Engagement | Time‑bound process: “own, monitor, influence, escalate”. Credibility comes from objectives, traceability, and escalation discipline. |
Exclusions as controls
Exclusions are easiest to audit. A third party should be able to verify that holdings comply with the stated boundaries.
Define
Scope, thresholds, and references (sectoral, norms-based, controversy-based).
Enforce
Controls that link rules to holdings and to investment decisions.
Document
Exceptions (if any) must be explicit and justified; otherwise exclusions become messaging.
Engagement as a process
Engagement is harder to evidence because it involves time and judgement. Credibility requires a structured approach: objectives, timeline, and escalation.
| Objective | Specific and measurable enough to evaluate progress (not a broad sustainability promise). |
|---|---|
| Timeline | A defined horizon; engagement without time is indistinguishable from inaction. |
| Escalation | What happens if progress is insufficient: voting, restrictions, or exit—documented. |
What evidence looks like
For professional review, evidence is not tone. It is traceable artefacts:
Exclusions
Holdings alignment
Rules mapped to holdings, with clear thresholds and consistent application.
Engagement
Recorded process
Objectives, interactions, progress checks, and escalation decisions recorded over time.
Common pitfalls
- Engagement described as a substitute for exclusions without clear escalation.
- Exclusions communicated broadly but defined narrowly or with unclear thresholds.
- Language that implies outcomes (“impact”) without a reporting structure that can evidence them.