Earlier this year we conducted a research project assessing how asset managers viewed the UK Stewardship Code. One of the things that stood out in the interviews we conducted with current signatories to the Code was just how numerous and varied their views were, regarding both the future direction of the UK Stewardship Code and stewardship reporting in general.
Last week I was delighted to be joined by three industry experts to discuss this topic in more detail, and to share some of their insights with those who may be considering becoming signatories of the UK Stewardship Code for the first time next year.
My guests were Justin Dutcher from Loomis Sayles, Chris Anker from Redwheel and Benjie Elston from White Marble.
You can watch the recording of the full session here.
Stewardship, as a concept, is evolving
The conversation started with a discussion of the definition of stewardship in relation to terms such as sustainability and fiduciary duty.
The panel observed that stewardship is undergoing a transformation, its historical focus on engagement being replaced by a more holistic approach that includes advocacy, acknowledgment of industry influence and a growing emphasis on ESG integration. However, it is important to note that not all engagement is “ESG” – asset managers can, and frequently do, engage with investee firms on topics that are relevant to their business activities, but may not be classed as ESG factors.
Reporting can be a challenge
Resourcing demands, the diversity of reporting requirements and the aspirational nature of frameworks such as the UK Stewardship Code can make reporting initiatives a challenge. The panel highlighted the importance of internal buy-in and laying the groundwork for efficient and engaged collaboration across the business, in order to collate information and secure sign-off from senior leadership, compliance and legal teams.
Principle one of the UK Stewardship Code is often highlighted as being especially challenging for firms becoming signatories to the Code for the first time – particularly small firms that may not have gone through an exercise in the past to define their values and articulate how their corporate culture relates to their investment approach. Allowing time (and senior input) for this, and drawing on specialist resources where necessary, can make this section less daunting.
Humility is needed in collaborative endeavors
For many, collaborative engagement and participation in industry bodies serves as an instrumental means of educating internal teams, and staying abreast of the sentiment and direction of the wider market. However, collaborating with peers, who are in most other contexts viewed as competitors, requires a degree of humility and transparency which is often at odds with the industry’s competitive nature.
Going beyond – closing the loop
An insightful question from the audience highlighted the fact that the relationship between investment decisions and engagement is not a one-way street – firms should seek to further explain how the results of their stewardship activities in turn influence future investment decisions. Defining this process requires a consideration of materiality, and an effort to succinctly articulate the relationship between stewardship activities and investment policy or individual decisions.
There is work ahead
For firms that fall within the scope of the UK SDR, there is work ahead in terms of creating coherent conceptual frameworks that first set out their general approach to stewardship. The next stage is to drill into how they are designing stewardship approaches that are tailored to funds that sit within the new fund labels the SDR has defined.
A final thank you is warranted for the three panellists that lent their time and expertise to this conversation.
If you have any follow up questions or would like to discuss White Marble’s stewardship reporting capabilities, please get in touch.