Discussion – Stewardship
DISCUSSION: STEWARDSHIP
There was a time when an institutional investor owning equity in a company simply sat down with its directors to make sure they were managing their financial risks and to ask how much money they will make this year.
Things have changed. Savers and other stakeholders now want companies to be greener and more socially responsible and so are pushing those managing their retirement funds to create more sustainable portfolios. Therefore, attitudes towards stewardship of the assets have changed, but how does this work in practice? portfolio institutional sat down with a panel of experts to find out.
How has the definition of stewardship changed since the first UK Stewardship Code was published in 2010? Claudia Chapman: The code was initially a set of principles around how institutional investors should be the stewards of pre- dominantly UK-listed equity. It was about making UK corporate governance more effective and thinking about the long- term sustainability of companies. In 2019, we repurposed stewardship to serve the needs of pensioners and savers. For example, if being invested in a com- pany is no longer in the best interests of your members, then you should divest despite the fact that it might mean the company fails. We extended the definition beyond listed equity. Effective stewardship should be demonstrated irrespective of how your capital is invested. That might be corpo- rate fixed income, sovereign debt, real assets, you name it. We also saw that investment by UK asset
38 | portfolio institutional | July-August 2023 | Issue 125
owners in UK plc was declining, so it now covers wherever in the world you are investing.
It also considers decisions before you allo- cate to an asset, right through to holding and divestment, if that is necessary. Effec- tive
stewardship should have positive
effects on the economy, the environment and society.
If the UK Stewardship Code has been re- written for members, what does it mean to asset owners? Jen Bishop: We see it as a risk manage- ment tool. It is a way to ensure that we are looking after all risks over all horizons. Sometimes that can be conversations around why people are not thinking long term. Our members are focused on finan- cial outcomes. They want to understand how an investment might affect wider stakeholders, but they also want to know how it will affect them, given that they rely on their pension income.
It is increasingly easier to tie environ- mental, social and governance risks to financial outcomes. Being able to prove that is helpful during conversations around fiduciary duty. Michael Marks: Stewardship is about pro- tecting our clients’ assets. We bring a uni- versal owner perspective to engaging with governments, international organisations or individual companies to raise market standards across the board. To bring that to life, we engage with gov- ernments because they set frameworks. For example, when auto manufacturers were told that beyond a certain date they could no longer sell internal combustion engine cars, they replied that it was impossible to meet that deadline. The moment frameworks were put in place, however, it was amazing how quickly those companies changed their business models to address what was achievable. Our clients expect us to think about the levers we have, which could be using our
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