PLSA ESG 22: Stewardship not just ‘voting and listed equities’

The stewardship discussion has “too often been too narrowly focused on the role of voting and of listed equites by asset owners, asset managers and by regulators”, Aligning Stewardship across Asset Owners and Investment Managers Investment Industry Steering Group co-chair, Archie Struthers, has stated.

Speaking at the PLSA ESG 2022 Conference, Struthers explained that the steering group is seeking to cover all asset classes for all parts of the investment process, “from investment choice, to engagement, exercising rights and ongoing responsibilities”.

The steering group’s report – currently at final draft stage – “will recommend a series of changes, both to behaviour of asset owners and investment managers, and of practices to achieve a minimum standard”, Struthers revealed.

Flexibility will be key to the recommendations, he added, “because there are different business models and different types of asset owners out there, and so we have approached this as trying to raise the bar for everybody, as opposed to coming out with a set of best practices that are actually unachievable for many”.

A framework is also needed to help asset owners assess stewardship outcomes, he stated, along with praising the Taskforce on Pension Scheme Voting Implementation’s recommendation of investors filling in expression of wish forms indicating how they would like to vote on various issues.

“We see this an important and significant shift away from the previous industry discussion that was more on directive voting and pooled funds,” Struthers explained, adding that it will help trustees overcome legal barriers and be consistent with their fiduciary duties while implementing their stewardship goals.

He also highlighted the steering group’s findings throughout the investment process, from the need for clarity from asset owners to more easily align with their stewardship policies with product offerings at the pre-selection stage, to placing a greater value on stewardship in the selection criteria and being transparent about the capacity and commitment of stewardship over time, along with having a framework for monitoring progress against the stewardship outcomes.

According to Struthers, the steering group would like to see greater emphasis on stewardship across all documents that make up the asset owner/investment manager relationship and on its reporting expectations.

For larger schemes or segregated mandates, it may recommend signing up to a governing charter that sets out mutual commitments and responsibilities to help prioritise sustainable value, and to provide a framework for ongoing dialogue and consultation, which formalises long-term expectations for culture and governance.

“Critically underpinning all of this is how should stewardship outcomes be assessed,” he added.

The IA and PLSA co-sponsored steering group was established in January 2021 to examine how stewardship and a focus on long-term investment can be better integrated into the investment process. For this it brings together asset owners, investment managers and other relevant stakeholders to cover range of issues designed to strengthen the relationship between asset owners and investment managers.

The group is expected to help deliver the recommendations outlined by the Asset Management Taskforce Stewardship Working Group in November 2020 and to address the issues raised by the Financial Conduct Authority in its statement on building a regulatory framework for effective stewardship.

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