What effect does the trend of index investing have on corporate-investor engagement regarding sustainability?

The trend of index investing plays a significant role in shaping corporate-investor engagement regarding sustainability, particularly through the lens of investment stewardship. Index investing involves allocating funds to a portfolio that mirrors a specific market index, typically focusing on large-cap stocks.

This method encourages a broad approach to investing, where the emphasis shifts from individual stock selection to managing a diversified portfolio. Consequently, investment stewardship becomes more important as passive investors engage with companies in the index to promote sustainable practices. They may express their views on environmental, social, and governance (ESG) issues through shareholder proposals or communicate with companies regarding their sustainability strategies.

Moreover, as more investors adopt index strategies, there is an increased expectation for corporations to align their operations with sustainable practices. This trend creates a collective voice among investors, leading to greater corporate accountability and responsiveness to sustainability issues. Hence, index investing not only maintains a presence in the conversation surrounding sustainability but also enhances the engagement process between investors and corporations, making option B the most fitting answer.