6 Key Facts

Question 1

1. Stewardship is active, responsible ownership of companies or other assets on behalf of a long-term owner, a reflection of the investor’s fiduciary duty to its clients and beneficiaries.

Answer 1

2. Engagement is active dialogue with companies with a particular purpose. Typically, it covers one or more ESG matter(s).

Question 2

3. Voting at shareholder meetings is one element of stewardship. Often it is the most public, so it gains external attention, but it is nevertheless a limited element with limited influence on its own. Few investors attend company general meetings but could benefit from the insights and influence that come from doing so.

Answer 2

4. There is strong evidence that engagement, if carried out well, can ***positively influence corporate behaviour and that the changes made can deliver long-term value.

Question 3

5. Many countries have stewardship codes in place, and increasing numbers are developing such codes; increasingly, these are codes with regulatory backing.

Answer 3

6. Generally, engagement is most successful if carried out positively and consensually, recognising that the ***changes sought are in the company’s interests not in an investor’s self-interest.

Question 4

7. Yet sometimes engagement must be ***escalated in order to have effect. This can be through a range of mechanisms, including going public, proposing shareholder resolutions, or working collectively with other shareholders.

Answer 4

8. One of the most significant constraints on investors delivering effective stewardship and engagement is ***resources – particularly where the investor has broad investment portfolios.

Finding responses to these resource constraints is one of the major challenges currently, and among the answers being found are:

▶ hiring new resource;
▶ prioritising with care;
▶ expecting more ESG delivery from ***mainstream fund management teams; and
▶ using collective and collaborative engagement resources.

Question 5

9. Some forms of engagement start ***bottom-up, by focusing on the specific issues faced by an individual company,

while others operate ** top-down by applying a perspective on particular issues (e.g. climate change) across all companies in a sector or market as a whole.

Typically, the approach is linked to the investor’s investment approach.

Answer 5

10. The most effective engagement starts with clarity over the engagement objective and how delivery against that objective will be measured over time.

Greater clarity in these respects will be required by the focus on outcomes in the new ***UK Stewardship Code, and increasingly by clients. Engagement success often takes years to deliver in full.

Question 6

11. Collective engagement is a key route to maximising **effectiveness from limited resources, but investors must beware of r*egulatory constraints such as rules against acting in concert.

Answer 6

12. Engagement can be carried out across the full range of investment asset classes.

The principles and mindset of engagement and stewardship need to be applied with good sense and judgment to the different circumstances and the levers that the investor controls.