A growing number of institutional investors are moving from being short-term renters of shares to long-term owners of companies.
President Obama's chief economist Larry Summers once said: "In the history of the world, no-one has ever washed a rented car."
In other words, why bother putting energy into something you don't own? The quip could well describe the changing face of investment practices in the early 21st century, with a growing number of institutional investors shifting strategies from being short-term renters of shares to long-term owners of companies.
The trend away from arms-length ownership toward active ownership and engagement has been escalating in recent years, largely spearheaded by the responsible investment sector and their growing concerns about the impact that environmental, social and governance issues are now having on the performance of companies.
An obvious case in point is the global financial crisis, which has taught us that governance failures and short-termism come at a significant cost to investors.
Our corporate and finance sectors are also now on a rapid learning curve, as the world economy completely reinvents the way that it generates and uses energy and deals with the considerable consequences of climate change.
Put simply, it is no longer that easy to tell from a balance sheet whether or not a company is well managed, and whether it is going to survive the significant and surprising events that this new century throws up with unnerving regularity.
Which is why investors have turned to engagement as a way to find more and better information about what is really driving company value in the 21st century.
When investing for the long-term, share owners have a right to encourage companies to improve the management of risk in order to protect shareholder value and enhance long-term returns. Not only do they have the right, fiduciary duty would suggest they are obliged to.
A 2008 survey by the National Association of Pension Funds (UK) found that a large proportion of the pension funds surveyed had brought about changes through engagement, with 79 per cent seeing changes to company remuneration policy and 68 per cent driving changes to social and environmental policies.
Shareholder activism is also on the rise and is often the next step after engagement has failed to produce satisfactory results.
In 2007 there were 367 shareholder resolutions raised in the United States on environmental and social issues, each resolution receiving an average support of 15.4 per cent - a dramatic increase on the 9.8 per cent support of the previous year and an excellent support rate in anyone's terms.
An example is the 2008 resolution raised by a group of 300 religious institutional investors representing US$100 billion ($146 billion), which succeeded in its request that the Ford Motor Company commit to a 30 per cent reduction in new car emissions by 2020.
Unlike the US, there is less interest here in Australia in adversarial-style activism but an increasing emphasis on engagement.
In 2007 the Regnan group was established by a consortium of superannation funds and fund managers who were looking to add value through collaborative engagement on environmental, social and governance issues.
The funds which Regnan represents in its engagement processes represent one in every eight institutional dollars in the Australian share market.
Their latest work on behalf of their investors revolves around executive remuneration.
In addition, Australia now has 26 investor signatories to the Carbon Disclosure Project (CDP), which seeks information on the climate liability exposure of the world's largest companies. In 2008, 72 of the ASX100 answered the CDP questionnaire, an improvement of 26 per cent over the previous year.
Engagement, and the research that informs it, has become an essential tool to identify horizon issues which, in this day and age, can so easily transform into unwelcome, surprise events.
If there is strength in numbers then this new wave of collaborative engagement and activism is indeed a force to be reckoned with. And in these troubling times, there is certainly no lack of issues that warrant attention.
Louise O'Halloran is the Responsible Investment Association Australasia's executive director.
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