Demonstrating stewardship and governance

What is stewardship? 

The ESG landscape is complex and constantly evolving. But it forms just part of the bigger picture that is ‘investment stewardship’; the ongoing governance of all companies, funds, and portfolios that asset managers oversee, beyond ESG products and investments. 

The very definition of stewardship has broadened, as reflected by 2020’s UK Stewardship Code more expansive revision of the earlier (2010) code;

“Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society.” 

While the earlier definition referred to risk-adjusted returns and ensuring benefit to clients and beneficiaries, the latter acknowledges the wider role that sustainable and responsible investment plays in our economy and society.

The progression of stewardship’s meaning is reflective of society’s shifting values and focus. Environmental and social factors, in addition to governance, continue to grow in influence and impact. The code lays out engagement standards for asset owners, asset managers, investment consultants and service providers, outlining minimum expectations. As such its 199 signatories (correct as of March 2022) now actively undertake stewardship and in so doing, minimising systemic risks. If they fail to produce sufficient annual stewardship reports for the FRC’s review, they forfeit their position on the list. With ongoing concerns around ‘greenwashing’ and investors being misled by ESG credentials, the FRC’s aim is to narrow the gap between what is said and what is done. 

We mustn’t overlook the ‘G’ in ESG

Corporate governance plays a key role in environmental sustainability and human rights. As a World Economic Forum article from last month highlights,​​Behind each breach of a company’s environmental or social commitments lies ineffective corporate governance, be it inadequate anti-corruption practices, perverse incentive structures, contradictory lobbying activity, ineffective board oversight or ill-equipped leadership”. As one third of the ESG formula, the importance of governance cannot be understated. The makeup of a company’s executive board will have wider implications across management style, as well as environmental impact and social aspects. 

Metrics to monitor

Board effectiveness, management diversity, shareholder rights and remuneration are some of the common categories companies are choosing to track. The latter has become a hot topic as ESG’s prominence has accelerated amidst the climate crisis, COVID-19  pandemic and global economic uncertainty. Tying executive remuneration and broader pay conditions to ESG measures is increasingly discussed as company boards recognise their role in addressing these issues. It’s expected investor, consumer, and stakeholder interest will increase in this area as it’s seen as another way to hold companies and their executives to account.

Demonstrating stewardship governance with SI Engage

And holding companies to account is what it’s all about. It is clear that the only way to demonstrate stewardship governance, and wider ESG compliance, is with transparent engagement. With SI Engage, all stakeholder interaction can be recorded, monitored and flagged as appropriate. Engagements from different teams all over the world are collated to create straightforward and meaningful insights. 

SI Engage generates real-time engagement insights across a number of impact metrics to make reporting simpler and more efficient. Reports are easily customisable to stakeholder requirement, and quick to download.

SI Engage will help you evidence adherence to regulatory requirements, while future-proofing your success. Get in touch to request a demo.

Image credit to Vecteezy.com.

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