Discussion – Stewardship
would not necessarily have planned for on their own. But some companies are reticent to engage, so we are not always successful. Simon Rawson: My challenge is not get- ting BP and Tesco to the table. It is getting investors prepared to use their tools to deploy that stewardship, such as a voice at the AGM and a public voice, because the majority don’t use them. In our research on the world’s 80 largest asset managers, 80% said they have pri- vate dialogues and send letters to compa- nies, but the number who spoke at an AGMs falls to 25%. Those who have filed a shareholder proposal drop to 20%. Shipra Gupta: There is no one-size-fits-all here. There are state-owned companies where there is most often a dismissal of engagement with investors, while there is dual class share ownership, so bringing about change in those companies comes with its own issues. But equally, we have challenged compa- nies on not having, for example, sustaina- bility KPIs related to executive compensa- tion, and they have shown great intent, asking us to share best practice with them. Another example is of a company where the board member responsible for diversity, equity and inclusion has proac- tively engaged with us. So there are nug- gets of great examples of investor-corpo- rate engagements.
The other challenge for investors is how do we use our limited resources to make the greatest impact. Is it by our largest shareholding? Or should we put our ener- gies behind the companies which are the next size down from the mega caps, where arguably we possibly can expect to have greater influence? Chapman: Because there are such high ex- pectations of investors to tackle these is- sues, there is an assumption that you can be everything to everyone. But there is an opportunity to control that narrative. We spoke to a small investment manager who has limited resources and is going to tackle mental health as “everybody’s doing climate”. They have identified men-
40 | portfolio institutional | July-August 2023 | Issue 125
tal health as a systemic risk and the UK Stewardship Code, by identifying systemic risk as a stewardship priority, has given them the mandate to have that narrative. Perhaps the best use of your resources is to engage with regulators and policymak- ers to change the system, rather than hav- ing a one-to-one engagement with a com- pany that is not going to respond. Marks: Our role is not to tell a company what to do. We are not meant to steer the ship. But if the ship is struggling over something, such as remuneration, we want to be the tug that comes alongside and helps it to the shore. We should engage on all of our selected topics. Asset owners may have different perspectives and prioritise less financially material issues, but as an asset manager, for each theme we focus on, I ask the team to answer: why does this matter to our clients as investors? If we don’t answer that question, are we doing our job as investment stewards? Bishop: There has been a setback on stew- ardship. It feels like some of the conserv- ative voices in America have been so loud that some managers have significantly decreased what they are willing to do. We would have graded them A, B or C on stewardship a year ago, but now in some cases it is much lower.
The pushback on anything that can affect short-term profit is strong. Some manag- ers are finding it hard to balance long- term goals with implication for short- term profits because the US has spoken loudly to them on this.
Where we were once trying to get manag- ers to improve on stewardship, it is now a question of: are they doing at least the minimum? Gupta: You have finite resources and want to push regulation and policy where it can help, but equally, in areas like the US, you want to engage with corporates to lead with best practice. You need to support your managers, be- cause they are under pressure from where they operate, and yet be the constant voice that keeps them honest on managing and mitigating sustainability risks. Bishop: But because there are so many dif- ferent areas of focus in ESG, and manag- ers do not hear the same from all inves- tors, this message can be diluted versus the strong anti-ESG message from some parts of the US. Gupta: Look at reproductive rights. How far have we gone back? There are share- holder resolutions asking how reproduc- tive rights are being protected. This is where corporates can be supportive against the policies of the state.
Stewardship is across the capital structure. It’s not equity owner- ship, it’s asset
ownership. Michael Marks
Head of investment stewardship and responsible investment integration LGIM
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