Quality over quantity in stewardship

In the evolving landscape of investment management, engagement between asset managers and investment holdings has emerged as a central theme, especially with the increasing emphasis on ESG factors. However, the latest Stewardship Report from Wheb Asset Management raises a crucial point: heightened engagement, driven by regulatory demands, risks diluting the effectiveness of stewardship, creating what they term an “unintentional stewardship stampede.”

The unintended consequences of metric-driven engagement

The drive to showcase engagement activities can often translate into a focus on quantitative metrics—how many engagements asset managers conduct rather than the substantive quality or outcomes of these interactions. This focus on numbers, as highlighted by Wheb’s recent impact report, does not adequately reflect the depth or nuances of meaningful stewardship capable of influencing real-world outcomes. The core of meaningful engagement should centre not on the quantity but on transformative changes that these engagements foster within portfolio companies.

Moving beyond “engagement for engagement’s sake”

Racheal Monteiro of Wheb Asset Management articulates a shift in perspective, where engagement is evolving from mere data-gathering to a more profound interaction to effect real-world change. This evolution necessitates an enhancement in the quality and focus of reporting, where the mere number of engagements does not suffice as a proxy for the ultimate purpose of stewardship—real-world impact.

Echoing this sentiment, Lindsey Stewart from Morningstar Sustainalytics points out the growing need to define clear objectives for engagement activities and to make disclosures more meaningful:
“If you disclose your volume of activities and present it as being a ‘good thing’, it creates internal pressure to report more of it each year. There are a number of voices in the market who have decided we’ve reached a point where ‘more’ does not necessarily equal ‘better’. It’s true no single metric is an adequate proxy for real-world outcomes, but at the same time, the metrics remain important. The onus is on reporters to ensure what they disclose is truly meaningful.”

SI Engage, elevating stewardship

For investment and stewardship teams, platforms like SI Engage play a pivotal role. By centralising and simplifying the tracking and reporting of engagement activities, SI Engage ensures that engagement data serves its primary purpose—facilitating positive change. From its intuitive dashboard, to ‘share’ and ’embed’ functionality, this tool expertly supports teams in moving beyond superficial engagement metrics to leverage corporate engagement data for substantial and sustainable impact.

The essential takeaway from Wheb Asset Management’s insights is clear: quality must always precede quantity in engagement strategies. As asset managers navigate this terrain, it becomes imperative to refine engagement practices to ensure they contribute effectively to the sustainability and success of their investment holdings, ultimately fostering a healthier planet and society.

Sign up for weekly insights, including SI Engage and industry news