Plant Stock photos by Vecteezy
In the rapidly evolving landscape of responsible investing, stewardship has become a cornerstone of asset management. Asset managers and stewardship teams are increasingly expected to go beyond financial performance, taking a proactive role in ensuring that companies adopt sustainable and responsible business practices. But with the growing demands of stewardship, how can asset managers maximise their impact efficiently? This blog explores how collaborative engagement, the role of technology, and strategic approaches can enhance stewardship efforts and drive meaningful outcomes for both investors and companies.
Stewardship is the process by which investors actively engage with the companies in their portfolios to encourage better governance, sustainable practices, and long-term value creation. This role has expanded significantly in recent years, driven by growing investor expectations, regulatory requirements, and global challenges such as climate change.
In particular, initiatives like Climate Action 100+, which brings together over 700 investors with more than $68 trillion in assets under management, demonstrate the power of collaborative engagement. Investors are collectively pressuring the world’s largest greenhouse gas emitters to reduce their environmental impact, and such efforts are showing results. However, for asset managers looking to scale their stewardship efforts, the question remains: How can they maximise their impact efficiently and sustainably?
One of the most powerful strategies in stewardship is collaborative engagement. When multiple investors come together, they amplify their influence on companies, particularly those resistant to change. By presenting a united front, investors can push for more substantial changes than any one firm could achieve alone.
Collaborative engagement also allows investors to pool resources, share expertise, and reduce the duplication of efforts. Instead of individual investors running parallel initiatives, they can join forces to address systemic issues like climate risk, diversity, and human rights violations. Investor coalitions like Climate Action 100+ are prime examples of how collaboration can drive significant progress on ESG issues.
Benefits of collaborative engagement include:
1. Enhanced influence: The combined assets and voice of multiple investors can drive companies to take action more swiftly.
2. Resource sharing: Investors can reduce the burden of research, data gathering, and monitoring by sharing responsibilities.
3. Increased efficiency: Joint engagements reduce the need for multiple, uncoordinated interactions with a company, streamlining the process for all stakeholders involved.
As the scope and complexity of stewardship increase, technology is becoming an essential tool for asset managers looking to maximise their efforts. From monitoring portfolio companies’ ESG performance to tracking engagement progress, technology can help streamline and enhance the stewardship process in several ways:
1. Data aggregation and analysis: With vast amounts of ESG data available from multiple sources, it can be challenging to sift through and identify meaningful insights. Technology platforms can aggregate data from various sources, providing asset managers with a clear picture of a company’s ESG risks and opportunities. By leveraging AI and machine learning, these tools can help prioritise engagements based on risk exposure or materiality.
2. Tracking and reporting: Keeping track of multiple engagements across a large portfolio can be overwhelming. Technology platforms can help stewardship teams monitor the progress of their engagements, document key milestones, and generate reports on outcomes, ensuring that the process is transparent and accountable.
3. Collaborative platforms: As collaborative engagement becomes more prevalent, technology platforms designed for multi-investor collaboration can streamline communication and coordination. These platforms can facilitate real-time sharing of engagement strategies, progress, and insights, enabling investors to act more cohesively.
4. Proxy voting support: Voting on shareholder resolutions is a key component of stewardship. Technology can simplify the voting process by providing timely information on resolutions, aligning votes with ESG policies, and offering analytics on voting patterns and outcomes.
To truly maximise the impact of stewardship, asset managers and stewardship teams need to adopt strategic approaches that enhance both efficiency and effectiveness. Below are several key strategies that can help teams achieve better results:
1. Prioritise engagements based on materiality
Not all ESG issues have the same impact on a company’s long-term success, nor do they carry the same importance across industries. Stewardship teams should prioritise their engagements based on materiality—the ESG factors that are most likely to influence a company’s financial performance and sustainability. Industry frameworks like the Sustainability Accounting Standards Board (SASB) provide sector-specific guidance on which ESG issues are material for each industry, helping asset managers focus on what matters most.
2. Set clear objectives
Effective engagement requires clear goals. Stewardship teams should define specific objectives for each engagement, whether it’s pushing for more robust climate disclosures, improved board diversity, or better supply chain practices. Setting clear goals not only provides direction but also makes it easier to track progress and measure success. The PRI’s Active Ownership 2.0 framework emphasises the importance of goal-setting in engagement and provides guidance on how to link engagement activities to long-term outcomes.
3. Engage proactively, not reactively
Waiting for a crisis to engage with a company often leads to suboptimal results. Instead, asset managers should take a proactive approach by identifying potential risks before they escalate into problems. By engaging early on emerging issues like climate transition plans or supply chain transparency, investors can help companies course-correct before they face reputational or financial damage.
4. Leverage collaborative engagement networks
As previously mentioned, collaborative engagement can significantly amplify stewardship efforts. By joining investor-led coalitions or working with other institutional investors, asset managers can increase their influence while reducing the resource burden of individual engagements. Investor groups like ShareAction, which mobilise capital to drive positive corporate behaviour, offer valuable opportunities for collaboration.
5. Ensure transparency and accountability
Transparency is a key pillar of stewardship. Asset managers must be clear about their engagement priorities, strategies, and outcomes. Reporting on stewardship activities not only demonstrates accountability to clients but also enhances the credibility of stewardship efforts. The UK Stewardship Code and similar frameworks globally provide guidelines for how to ensure transparency in reporting.
As the investment industry continues to place greater emphasis on responsible ownership, the role of stewardship will only become more central to asset management. The increasing availability of ESG data, the growing importance of collaborative engagement, and advancements in technology will continue to transform how stewardship teams operate. Asset managers that leverage these tools and strategies will be better positioned to drive meaningful change and enhance long-term value for their clients.
By maximising stewardship efforts, asset managers can ensure they are contributing to a more sustainable and equitable future while also enhancing the financial resilience of their portfolios.
For those looking to take their stewardship efforts to the next level, technology platforms designed to streamline ESG data, engagement tracking, and collaborative efforts can be invaluable. While tools like these are essential in today’s complex stewardship environment, success ultimately lies in the ability to engage thoughtfully, prioritise the right issues, and collaborate effectively.
