Maanch brought together a diverse group of practitioners and stewardship experts to discuss top-of-mind challenges and best practices for stewardship. BlackRock, Columbia Threadneedle Investments, Impax, CCLA and UBS were among the leading organisations in attendance.
Varied themes discussed at the roundtable have been summarised below.
Challenges in Stewardship Reporting Requirements
Stewardship plays a crucial role in promoting better practices across the investment chain. It goes beyond simply owning equities and exercising voting rights; it encompasses many other shareholder rights like filing proposals and attending general meetings. As a fundamental responsibility of the finance industry, stewardship involves responsibly stewarding savers and investors’ money and serves as a public good. It also serves in fostering a sustainable future by allocating funds towards companies that operate ethically and responsibly or are open to making necessary changes to enhance their sustainability practices.
Meeting Client Demands
- Stewardship reporting has been a dominant topic of discussion driven by client demand, regulatory changes and the push for greater oversight from pension funds.
- Asset managers are now expected to engage in open conversations with clients regarding voting policies and the extent of voting carried out on their behalf. This has resulted in increased data requests to provide engagement reporting to clients using various templates which are not necessarily aligned and are the subject of the Investment Consultant Stewardship Working Group Guide.
- However, some challenges with the guide have been expressed as it combines the core elements of engagement reporting with additional requests from investment consultants, without clarity on the intended use of the extra data. Smaller firms, in particular, are concerned about the additional burden and resource constraints in fulfilling these reporting requirements.
- There is also a growing expectation for asset managers to incorporate the views of their clients in stewardship activities by principle 6 of the UK Stewardship Code. Emphasis on client perspectives is hence, considered crucial for improving stewardship outcomes.
- A report published by the Investment Association in collaboration with the Pensions and Lifetime Saving Association, also emphasises the importance of understanding and integrating client views in stewardship from various aspects of asset management, such as manager selection, contractual arrangements, execution of rights, ongoing oversight, and performance assessment.
- Given the regulatory requirements emerging from Sustainable Disclosure Regulations, specifically the labelling regime, there’s an increased emphasis on stewardship for qualifying in the sustainable improver category.
- In addition, growing pressure exists to demonstrate stewardship activities and outcomes under the UK Stewardship Code, which has been addressed by the FCA through consultations and initiatives like finance for positive sustainable change.
- As part of the UK’s green finance strategy, various regulatory bodies will review the effectiveness of stewardship, including evaluating stewardship activities and outcomes, establishing a common language around stewardship, and addressing challenges in non-listed equity asset classes such as fixed income.
- The Investment Association released another report on stewardship in fixed income and plans to establish a working group to explore challenges and best practices in this area.
The impact of reporting requirements on individual firms goes against the collaborative essence of stewardship in the UK, adopting an activist approach. This individualistic approach undermines the accomplishments achieved through collaboration, such as fostering board diversity. Additionally, there is a growing recognition of the role of collaborative engagement as an integral part of the stewardship toolbox in addressing systemic risks and market-wide issues.
Read the full summary to delve further into this insightful discussion.