On the 6th of July, 2023, I had the privilege of moderating Impactive’s first webinar in its Responsible Investment Success series. I couldn’t have asked for a more impressive duo of panellists: Diandra Soobiah, Head of Responsible Investment at Nest and Valeria Piani, Head of Stewardship at Phoenix Group.
They both represent the largest pension schemes in the UK, and have deep experience and thought leadership in responsible investment.
At the event, we were joined by an engaged audience, made up of asset managers, institutional investors, consultancies, and industry bodies.
To say the least, it was a thought-provoking webinar, which you can watch in full here.
This blog post provides my key takeaways:
Asset owners carry a massive responsibility on their shoulders. Their members rely on them for their long-term financial well-being and expect them to do the right thing. But asset owners must navigate a complex set of activities to do so. Many rely on external asset management firms to implement their investment and stewardship policies.
Today’s set of urgent challenges, such as climate change, human rights breaches, and biodiversity loss require clear and decisive action. Without a laser focus on effective engagement, real-world outcomes, and meaningful reporting, asset owners struggle to deliver on their commitments to their members.
Both asset owners highlighted the importance of regular communication and shared learnings with their managers - and they see these conversations as positive on the whole. As new policies are developed, discussions with managers encourage improvements across all assets on material issues. We heard that while it is easier to implement policies in segregated funds, such discussions present opportunities to influence approaches in managers' pooled funds for broader impact.
Our panellists emphasised that an engagement is a two-way dialogue, where outcomes are expected, and progress is tracked and reported.
"We made it very clear in our stewardship policy that engagement is a two-way dialogue and it's a dialogue with outcome orientation. So, objectives have to be in place, and we would expect to receive some reporting on progress against these objectives" -Valeria Piani
While interactions with companies are an essential part of analysis and the investment process, not all interactions have the aim of changing behaviours at companies, and therefore should not be considered engagements.
Taking net zero as an example, each of Nest’s fund managers is given specific objectives, which can vary depending on the manager's progress towards net zero and the specific asset classes or strategies they handle.
Clear, measurable objectives are set, and fund managers are expected to provide evidence of their engagement efforts. Nest also encourages managers to collaborate with industry initiatives to drive change collectively. They expect active participation rather than passive involvement in these initiatives.
Overall, the approach is focused on establishing clear objectives, desired outcomes, realistic timelines, and next steps in case the initial efforts do not yield the desired results.
Asset owners find the combination of efforts between financial analysts and ESG specialists most valuable for effective engagement.
“ Actually, one of the most impactful conversations I've seen in the asset management world are coming from a combination of efforts of an analyst who knows in and out what a company is about, has been following the stock for a very long time, understands the strategy very well, understands the pitfalls and the strengths of that company, and then ESG analysts understanding where ESG is very specifically material for the success of their company. And working on an agenda together and agreeing on the engagements together and trying to have interactions together or separately, but tracking these interactions in a way that they can follow each other's work.”– Valeri Piani
The last point in Valeria’s quote is worth thinking about. For this collaborative effort to happen, fund managers, analysts, and ESG leads need to track each other’s work – meaning the right infrastructure needs to be in place to facilitate this.
Both Valeria and Diandra spoke candidly about the challenges in stewardship reporting for asset owners. When they are receiving reporting in different timeframes, and formats, with many inconsistencies in engagement methodologies, it becomes almost impossible to confidently report on this in aggregate.
An industry standard may well be needed in this regard.
Further, while outcomes-based reporting frameworks such as the FRC's Stewardship Code have helped set minimum standards, asset owners still find year-on-year impacts of their managers' stewardship efforts difficult to gauge.
"Our managers are struggling to report this information and it's not about the number of engagements --that is just the most meaningless number we can report."- Diandra Soobiah
We also took on board the message that asset owners need to push back on reporting expectations that don't provide meaningful decision-making information.
We carried out two polls during the webinar.
The first was to get a feel for the adequacy of resourcing for effective engagement and reporting. Most respondents felt under-resourced or somewhat well-resourced.
The second was on the time it takes to gather the content for stewardship reporting. Most indicated they spend over 100 annually:
Effective engagement is about closing fundamental gaps in the performance and policies of companies to create value and protect the long-term interest of the ultimate investors - pension scheme members. As such, asset managers have a big opportunity to help asset owners more clearly understand and report on the engagement works being undertaken on their behalf. A shift of focus on the quality of engagement is needed, with more granular capture of progress and real-world outcomes. Collaboration between fund managers, financial analysts, and ESG specialists can be a powerful way to carry out engagements. And to drive progress, asset owners encourage meaningful reporting standards that empower informed decision-making.
Did you know that there's a quick and easy way to start managing your stewardship work in a purpose-built SaaS platform?
By using the Impactive Platform, teams within asset management firms work in a dedicated digital workspace that brings investment, ESG data and insights, stewardship and voting data together in one place. When all this information is connected, regulatory and client reporting becomes easier.
Even better, asset owners and asset managers can be connected to the same system for real-time insights and collaboration.
Why not try it out for free to see how it can help your teams?
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