Equity manager stewardship survey
30 Jun 2017 - Estimated reading time: 15 minutes
Stewardship, being the oversight and protection of something that is considered valuable and worthy of preservation, conveys a level of responsibility. Such responsibility may fall broadly – for example, society as a whole could be viewed as stewards of the environment - or more directly on asset owners. Consideration must therefore be given to the manner in which these responsibilities are discharged in order to preserve, or indeed enhance value.
For equity investors, stewardship can be regarded as the considered voting of shares and engagement with company management. However, the notion of stewardship can be extended to other assets; consider for example an ongoing engagement between a property owner and tenants to ensure that the needs of the latter continue to be met. We therefore consider effective stewardship to be a key part of responsible investment.
Recent guidance from the Pensions Regulator for private sector defined benefit schemes has emphasised that trustees should consider stewardship in the exercise of their duties. Public sector funds have received similar guidance and pension committees are subject to ongoing scrutiny as to how they are both framing policy and exercising their responsibilities.
Whilst some investors frame their own stewardship policies, many choose to delegate these responsibilities to their investment managers. It is therefore incumbent on investors to understand their investment managers’ policies and practices.
To understand current practices, we surveyed a number of equity investment managers, the results of which are set out in the enclosed report. Three themes emerged from our survey:
- Consistency: Investors should demand the highest standards of corporate governance and where differences in approach arise, for example, across regions, managers should be prepared to explain the reasons for these differences to trustees.
- Integration: Whilst the growth in resources dedicated to stewardship activity is welcome, this does not indicate how these resources are used and whether environmental, social and governance considerations are truly integrated into investment decision making.
- Transparency: Reporting on activity seems relatively common and sufficiently frequent to allow trustees to have some level of discussion with their investment managers. Finding ways to measure the success or otherwise of activities and improving disclosure can improve the accountability of managers to their clients.
Whilst surveys can capture some element of investment manager practices and identify areas of commonality or interest that are worthy of further exploration, they cannot measure the quality of managers’ approach to stewardship. We would therefore encourage investors to engage in an ongoing dialogue with their investment managers to ensure that they have a full appreciation of the approach adopted. Our report sets out some questions trustees can ask of their investment managers to help in this process.