Enhancing asset management through stewardship

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The imperative for robust stewardship and engagement practices is increasingly prominent in the ever-evolving landscape of asset management. LCP’s recently-published 2024 Responsible Investment (RI) survey sheds light on the current state and the necessary advances in this critical area. As SI Engage is designed to enhance engagement with portfolio companies, here are our key takeaways …

Understanding the landscape of stewardship

The survey highlights significant findings regarding the role of stewardship in enhancing financial performance and long-term value creation. With technological advancements and regulatory changes reshaping the industry, the importance of strategic stewardship cannot be overstated.

Key findings on managerial engagement:

• Engagement objectives: Only 48% of managers establish clear objectives for their engagements, a critical first step that remains under-utilised.
• Tracking and recording: About 51% of managers systematically track progress and outcomes, indicating a need for more rigorous follow-ups to enhance engagement effectiveness.
• Escalation policies: While 65% of managers have escalation policies, only 60% of these include specific timelines or triggers, underscoring a gap in strategic enforcement when engagements falter.

Focused areas and emerging risks

• Climate change: Stands out as a primary focus, with 57% of managers frequently engaging on this issue. This reflects a growing recognition of climate risks in investment strategies.
• Other environmental and social topics: Surprisingly, areas like artificial intelligence, pollution, and social factors like diversity receive considerably less attention, suggesting potential blind spots in current stewardship frameworks.

Voting and collaborative efforts

• Voting practices: There is a diverse approach to voting, with some managers actively challenging company management through independent decisions.
• Collaborative initiatives: Although collaboration is prevalent, with 66% of managers participating in collective efforts, there is a notable decline in those leading high-profile collaborations. This points to an opportunity for more assertive leadership in collaborative stewardship.

Recommendations for asset managers

• Proactive engagement: Managers are encouraged to adopt more proactive and constructive engagement strategies, moving beyond moderate approaches to foster substantive changes within investee companies.
• Stewardship performance: Asset owners should compare stewardship performance against peers and best practices, identifying areas for enhancement and promoting rigorous scrutiny of management decisions.
• Support for collective actions: Engaging in initiatives like Climate Action 100+ should be emphasised, leveraging collective influence to address broader systemic changes effectively.

“Engaging with companies, policymakers, and regulators is essential for addressing climate change, nature loss and inequality. However, this requires proper accountability. Setting clear objectives and milestones is a critical first step, yet it’s something that many managers overlook. We encourage investment managers to reevaluate their current engagement strategies to make them as effective as possible – and to be more focused on systemic risks.” Sapna Patel, Principal at LCP and Lead Author

The findings from LCP’s 2024 RI survey underscore the critical need for refined engagement strategies among asset managers. By setting clear objectives, tracking outcomes rigorously, and taking a proactive stance in stewardship practices, managers can significantly enhance the long-term value and sustainability of their investments. As SI Engage continues to support asset managers in enhancing their engagement practices, the insights from this survey provide a valuable framework for elevating the effectiveness and scope of stewardship in the asset management industry.

These comprehensive insights not only guide managers in honing their strategies but also align with the broader objectives of ensuring sustainable investment practices that contribute positively to societal and environmental outcomes.