Wealth and asset managers’ stewardship practices are becoming more sophisticated across many spectrums of the industry, which is essential if they are to hold the flurry of net-zero, biodiversity and human rights commitments made over the past few years to account, investments experts have said.
They may even play a role in impact investing – another area that will see increased interest this year.
Here, fund managers share their 2023 outlook for stewardship and governance:
Clients will get closer to stewardship
Louisiana Salge, head of sustainability, EQ Investors
For 2023, all eyes will be on stewardship to make sure the various asset manager commitments made in the past year regarding ending deforestation, net-zero emissions and acting on cost of living, are grounded in real-life change.
To demonstrate this, we would like to see stewardship reporting move beyond a quantitative round-up of interventions, towards a transparent milestone approach backed by an escalation strategy.
Through our engagement approaches we are nudging more asset managers to move away from a purely risk-focused approach to stewardship towards using their shareholder rights to encourage greater positive impact of their assets.
Clients will also be brought closer to the engagement process this year. Although the ultimate votes are cast by the fund managers we select, we are trying to innovate to not just oversee their activities and influence them with our thematic engagements, but extend that sight to underlying clients too.
Governance
As a B Corp, EQ Investors is set up to be managed for the benefit of all stakeholders. As part of that, we deal with the dual materiality of sustainability in respect to investments – it affects our investment performance, but our investment management affects real world sustainability achievements too.
We will keep working on helping more finance institutions change their governance structures to reflect a wider purpose for all stakeholders.
Another active AGM season
Paul Lee, head of stewardship and sustainable investment strategy, Redington
We expect to see a lot more attention paid by pension schemes to stewardship in 2023. New government regulations insist on it, but also schemes – and other asset owners – increasingly recognise that delivering effective stewardship will be core to delivering their ESG aspirations, not least their net-zero and other climate change ambitions.
Most asset owners will not deliver stewardship themselves, but will look to their investment managers to deliver it, and provide concrete outcomes through their activities. The challenge for asset owners is therefore: first to make sense of the mass of reporting on activity by their managers; second to understand what has been achieved by that activity; and third to hold the managers to account to do more and do better.
We expect another very active AGM season from April to June, with multiple shareholder resolutions on key topics. But we also expect an increased intensity of focus on non-equities asset classes, most prominently fixed income but also property, infrastructure and private equity. Stewardship is a mindset that should be applied across investments as a whole, and investment managers need to rise to client expectations in that regard.
Stewardship will be seen as an impact strategy
David Sheasby, head of stewardship, sustainability and impact, Martin Currie
The question that is put to asset managers by asset owners is “so what?” when asking them to demonstrate the effectiveness of their approach to stewardship. That is put to companies by asset managers to understand how sustainability considerations are influencing business strategy; and by regulators to ensure transparency and authenticity across the entire investment value chain.
In the investment arena impact, or more particularly impact investing, has become significantly more prominent as investors focus of the intentionality of their investments.
Impact can be achieved through different means – the activity and actions of companies, or the commitment of capital to these investments alongside the stewardship activities of investors. Historically, the definition of impact has focused on private capital provision to drive impact and has ignored the role that structured investor stewardship can play.
An interesting development in the summer of 2022 was the public consultation by GIIN on impact investing in public equities. This builds on the recognition that all businesses (and therefore, by extension, all investments), have effects on people and on the planet – both positive and negative.
This report begins to recognise the important role stewardship can play in achieving impact, and we expect the role of public equities in generating impact will be a key focus for 2023.
