With environmental, social and governance (ESG) investment themes springing up around the world, the pressure is growing on institutional investors to become active and responsible owners.

Indeed, Colin Melvin, chief executive at Hermes Equity Ownership Service (EOS), reports increasing interest in responsible ownership from European pension funds.

"There are two reasons," he says. "One is that pension fund executives feel more responsible for the assets they invest in, so there is a greater understanding of what it means to own companies through shareholdings and the responsibilities attached this. The other is the opportunity arising from active ownership, because pension funds are likely to raise the value of invested companies through a process of engagement and dialogue and therefore add to the value of their fund."

And the demand for responsible ownership is spurred by ESG drivers such as the UN's principles of responsible investment (PRI) launched 18 months ago, he adds.

And there are other factors in addition to the PRI. Earlier this year the Dutch TV programme Zembla accused some pension funds in the Netherlands of behaving badly, by, for example, investing in companies that manufacture cluster bombs or use child labour. And there has also been extensive media coverage of climate change. Such elements have been responsible for the sharp growth in demand in 2007, according to Karina Litvack, head of governance and sustainable investment at F&C Asset Management.

"Our responsible engagement overlay (REO) approach was a steady product during the last seven years," she says. "But following Zembla, interest has just taken off."

"In the 1990s, we were a niche," says Magnus Furugård, president and managing director of Sweden and Denmark-based Global Ethical Standard Investment Services (GES). "Active and responsible ownership started to grow more rapidly around 2000, but it is really the last two years that have delivered outstanding growth. Today, both fund of funds and asset managers like to implement ESG issues and be transparent about it." And Melvin and Litvack report that this year, for the first time, their services have been actively approached by clients.

However, most demand comes from PRI signatories and concentrates on regions that have a large number of developed pension funds such as Scandinavia, the Netherlands and the UK, says Melvin.

Litvack and Furugård also report considerable interest from Austria, Germany and Switzerland.

Furugård says that 50% of GES clients such as pension funds, foundations and asset managers - of various sizes - are based in the Nordic countries, with a further 35% based elsewhere in rest of Europe and the rest in Australia and the US.

"At the moment our clients are mainly large funds," Melvin notes. "But we have been approached by small funds and are currently in discussions with them. Their interests do not really differ although perhaps some of the larger funds come under more external pressure to be responsible owners.

"Both small and large pension funds use REO," says Litvack.

"But in order for an overlay strategy to be affordable, pension funds need to be of a certain size, so many small ones would have to band together, as in the UK's Local Authority Pension Fund Forum. Large pension funds often have some in-house resources for active ownership issues, but they still outsource some of it, while investors without in-house capacities tend to fully outsource the service."

In fact, most investors choose active ownership services with their 15-20 plus staff teams due to capital and resource constraints.

The services offered comprise engagement, voting services and public policy consultation on behalf of institutional shareholders.

But in order for engagement to occur, it must be expected to add value to the invested company. "It is about working with companies on behalf of the owner to the common goal of a more valuable company," Melvin says. "Some of our universe's 4,500 companies are failing and will continue to fail but our task is to identify the ones with potential for improvement. We will stop engagement when we do not get anywhere after, say, several months, but that does not happen very often."

"For us the only justification for our engagement is that it falls within our mission to enhance and protect shareholder returns," says Litvack. "We do not, for example, tell tobacco companies to stop producing cigarettes, because it would put them out of business. Instead we talk to our tobacco holdings about factors relevant to their business success, such as their advertising or political lobbying policy."

She adds: "We do not sell stocks unless the client instructs us to do so. Instead we can take a number of actions to increase the pressure on a company such as a shareholder resolution.