News & analysis STEWARDSHIP: LET’S WORK TOGETHER
Pension schemes and asset managers should collaborate more to improve the outcomes of stewardship, a report argues. Andrew Holt takes a look.
The need to improve the relationship between pension
schemes and asset managers in implementing ESG targets is at the heart of a new report by a steering group established by the Investment Association (IA) and the PLSA. The report, which focusses on pension funds as the dominant asset owners in the UK market, criticises that stewardship efforts by asset owners and asset managers are often disjointed and lacking long-term focus.
It builds on the work of a joint steering group set up by the PLSA and IA last year to align stewardship expectations between asset managers and owners.
While the report recognises the introduction of the Steward- ship Code in 2020 as significant progress, it also criticises asset owners for having underdeveloped stewardship policies or treating them like a “hygiene factor”, rather than an essen- tial element of the selection process. Asset owners too often focus on short-term performance in the investment progress, rather than adding long-term value.
Asset managers in turn are in the firing line for low levels of consultation with clients when setting up stewardship policies and for a disconnect between stewardship policies and invest- ment objectives. They also stand accused of a lack of disclosure on their voting policies.
The central theme of the report is how to effectively address stewardship in the asset owner-asset manager relationship. In so doing, it sets out a guide for both sides to follow to create value.
The report suggests that asset owners and investment managers should “embed stewardship” in every aspect of their relationship and ensure this is borne out through a culture and commitment to prioritise sustainable, long-term value creation. This should start with a clear articulation of joint stewardship priorities by both sides, prior to appointing a manager. Asset owners should also embed long-term targets into the relation- ship with the asset manager.
Asset owners who outsourced stewardship to asset managers should nevertheless ensure that the implementation is aligned with their own priorities. Co-chair of the steering group and Zedra (formerly PTL) client director, Richard Butcher, said: “Stewardship is essential to building long-term value. It is important because it is part of ESG that can actually fundamentally shift the dial in terms of investing for good. If we can converge on a set of behaviours that are going to drive that good, and we can agree what those
set of behaviours are, then we can influence the way compa- nies operate.”
Agreed framework
One way to address this could be the creation of an “oversight framework” agreed on by asset owners and investment manag- ers which brings together a performance review cycle, invest- ment and stewardship objectives, as well as key performance indicators, the report says. This is needed so that collaboration across the investment chain effectively addresses “the myriad of sustainability challenges” and market-wide risks. This is one area where the group is attempting to instigate cul- tural change in
the owner-manager relationship: as this
approach differs from the current norm, which is based on more of a transactional style of relationship.
Under the spotlight As things stand between asset owners and managers, the group does not hold back in its criticism, dishing out some warnings to both groups, offering an indication of where prob- lems exist.
It cautions that investment managers “should be more proac- tive” about engaging with clients on their stewardship priori- ties while developing products and services to meet the demand for effective stewardship. This is a suggestion that some asset managers are failing in this regard. It also puts asset owners under the spotlight, stressing an impetus on owners to contrib- ute to the owner-manager dynamic in a more transparent way. A key focus for owners should be on ensuring their “steward- ship expectations are articulated clearly in the investment selection process” – with an underlying assumption they are failing to do so – and thereby creating alignment at the outset of the investment relationship.
When it comes to pension funds, trustees have an important role to play in that they should already have undertaken the necessary legwork to identify their stewardship policies as set out in the fund’s statement of investment principles. “Consultants and advisers also have an important role to play and help trustees and asset owners to form their stewardship approach and then find managers that are consistent with those stewardship objectives,” Butcher said.
Investment chain
This is part of an on-going challenge. “The reason we set about doing this work is that the approach to exercising stewardship was incredibly fragmented,” Butcher said. “Trustees and asset owners may have had a stewardship agenda but there was no link up with their advisors or their fund managers. So we want to have stewardship running through the middle of this pro- cess like the writing in a stick of rock.”
Issue 116 | September 2022 | portfolio institutional | 7
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60
