EUROPE - Active engagement with companies that fall foul of ethical norms is proving to be an effective way of improving corporate social responsibility, say Danish pension funds and other institutional investors in the country, according to a new report.

Independent corporate watchdog Danwatch said it found that the biggest Danish and Scandinavian investors were able to give a range of concrete examples to show that their engagement with various businesses had made a positive difference to ethical behaviour.

The report is based on interviews with major banks Danske Bank and Nordea, as well as pensions institutions ATP and PKA Pension, and consultancy GES Investment Services.

Danwatch said: "Those investors taking part in the report generally agree that they should be more open about their work with ethically active ownership.

"However, some point out that openness can harm the dialogue that is supposed to pave the way for changes."

But investors did not agree to what extent holding a dialogue was in itself effective, or whether they needed to have tougher means up their sleeves to achieve results, it said.

On the other hand, investors agreed that cooperation and coordination between the institutions was important, "both to be able to share knowledge and to increase the pressure on particular foreign businesses", Danwatch found.

The most frequently used argument from investors used to support a policy of active engagement rather than stock was that other, less scrupulous investors would always be there to buy the stock, Danwatch said.

Bjarne Graven Larsen, chief investment office at ATP, pointed out in the study that in selling a holding, the investor placed itself outside the business in question.

"If you have an engagement, then you still have a dialogue and can ask questions," he said.

"And you still appear in the media and can get a case noticed. So I believe you can put more long-lasting pressure on companies in this way."