Implementing effective stewardship in an uncertain world
By Amanda Floyd
The Principles for Responsible Investment (PRI) defines stewardship as: “the use of influence by institutional investors to maximise overall long-term value including the value of common economic, social and environmental assets, on which returns and clients’ and beneficiaries’ interests depend.”
On 23rd February 2023, Beaumont Bailey’s Director & Head of Investment, Amanda Floyd, hosted a panel discussion at the Royal Overseas League in London (UK) on the topic of Implementing effective stewardship. The expert panel consisted of Georgia Stewart, Co-Founder of Tumelo, Ido Eisenberg, Director, ESG Advisory at Deloitte, Darshita Gillies, Co-Founder and CEO of Maanch and Adam Gillett, Director, Head of Sustainable Investments at Willis Towers Watson. The group discussed the key considerations, the impact of the stewardship code, the role technology will play and shared advice for portfolio managers and firms looking to make more considered stewardship decisions.
What are the key considerations for investors regarding active stewardship?
“Three years ago, stewardship was just a box to tick” noted Darshita. She went on to share her three key pointers for the year ahead. “Firstly, asset managers will define their stance and strategy this year, there will be a large rise in collaborative engagements and there will be a shift in proxy voting, meaning asset managers will choose their stance on how to cast their votes in the most impactful way.” Ido went on to add, “the stewardship ecosystem has grown, we now have consultants, data providers and more regulatory bodies. Prioritisation of impact is important. Asset managers should look to prioritise and focus on what will provide the most impact now. We also need to move away from siloing ESG, investment and the sustainability sector. ESG needs to be truly integrated into investment, where investment means ESG investment everywhere.”
Georgia added that voting is currently in the limelight, particularly in the U.S. due to how polarising a topic ESG is compared to Europe and the U.K. She explained that “clients, investors (and everyone in between) is becoming more aware of ESG and that it is becoming a real focus, which will put pressure on how reporting is carried out.” She also noted that “large institutional houses, such as BlackRock, are launching a pilot scheme allowing people invested in mutual funds and Exchange-Traded Fund to have a voice in the voting process too. Collaboration is increasing across the board.”
Adam highlighted some challenges for organisations doing their utmost to drive the ESG agenda. “Although more companies are getting involved with stewardship, those putting their heads above the parapet are taking a battering from anti-ESG types. As consultants we have a job to keep pushing companies in the right direction. Additionally, we need to find the right budgeting and resourcing. If we silo account managers to asset allocation and stewardship its 99% assets to 1% stewardship, we certainly need to find the right balance here. This balance needs to be built into the business model and unlock a lot of things the other panellists have mentioned.”
What has been the impact of the Stewardship Code and is it fit for purpose in 2023?
Georgia kicked off the response to this question by stating that the “Stewardship Code is being updated. Other regulations such as the Implementation Statement also focus on asset owners in terms of reporting to make sure assets are aligned with ESG for the first time, which has forced trustees to pay attention to something they may have not before. An example of a business taking stewardship seriously is Scottish Widows, which has created their own voting system and policy for net zero. This ensures that during this voting season their agenda is pro climate disclosure and other ESG resolutions, which means they’re not at the whim of fund managers that may not be aligned to their strategy.”
Ido and Darshi then explained that we need to “be careful of the big ESG reports.” Ido noted that the current engagement reports are too cumbersome “and people are hiding behind the numbers, there are often no real outcomes.” Darshi went on to explain that “annual engagement reports are not an easy way for asset managers to prove the action they are taking now has had an effect, as many of the outcomes will come to the fore in a number of years.” She explained that we are a population “used to instant gratification” and that when it comes to reporting there is a “balance in the narrative between expressing that we are doing the correct thing now but the outcomes may not become obvious for a while yet.”
How are we going to address green labelling if there’s no standard, particularly if you’re a fund buyer with U.K. and European companies in your portfolio?
Adam explained that there is a “small glimmer of hope in U.K. regulation, which is more stewardship heavy compared to the EU. There is hope that the U.K. approach is adopted by Europe as we demonstrate the benefits over the coming years. Despite this, the Implementation Statement has changed the game, especially in pensions. Asset managers are now drowning in regulations, struggling to meet and deal with new demands. For asset managers, we have all this engagement data, but how can we learn and use it to succeed?”
How are companies streamlining data management and reporting, and what technology are they using?
Darshita explained, in simple terms, that when you enter “garbage in” you receive “garbage out” when it comes to data management and reporting. She went on to share some easy to follow steps to reach the data and reporting eutopia we dream of. First of all, “we need to work with what we have, what insights are relevant now and where are the gaps? Next, organisations need to commit to a clean data structure. This is when you can start using technology. Finally, have a clear vision and long-term journey in mind. What’s your net zero strategy, and how can technology help get you there? Technology will be crucial in achieving your ESG targets, but without good data there is no point investing in tech.”
Updating reporting so it speaks to people on a “human level” is crucial when getting trustees excited about stewardship, explained Georgia. “Current reporting is dry and data heavy, with no explanation about the outcomes. If, for example, a trustee was to receive a voting report today, nowhere would it say what happened during voting and explain the impact of the outcomes.”
If you would like to discuss any of the topics raised in this piece or about any resourcing support you may require, please get in touch with Amanda Floyd on: Amanda.email@example.com