Stewardship Limitations Call for Strategic Evolution

Highlights:

• Broader Strategies Needed: New approaches are being discussed to enhance investor stewardship beyond traditional ESG, company engagement, and proxy voting, focusing on strategic influence at government and policy levels.
• Challenges in Company Engagement: Despite efforts, some companies resist investor suggestions, particularly on complex issues like fossil fuel management, leading to divestment actions by major funds like Netherlands-based PFZW.
• Expanding Engagement Tactics: Investors are exploring new avenues such as engaging with the demand side, supporting relevant NGOs, and leveraging their networks to manage risks and influence outcomes effectively.

Expanding the Stewardship Playbook

New strategies are being discussed to enhance investor stewardship beyond traditional ESG, company engagement, and proxy voting. Insights from a global training programme at Oxford University highlighted the evolving landscape of stewardship.

Insights from Global Experts

Rowland Jackson, director of the Aotearoa New Zealand Stewardship Code, participated in a panel with experts including David Styles, former director of corporate governance and stewardship at the Financial Reporting Council; Professor John Coates of Harvard Law School; and Professor Lutfey Siddiqi from the National University of Singapore. Jackson emphasized that stewardship aims to help investors support and influence the companies they own to maximize value by managing critical risks and opportunities.

Challenges and Company Resistance

Despite success, challenges remain. Investors often engage with companies over several years to manage risks, but some companies resist, particularly on complex issues like fossil fuel management. For instance, Netherlands-based PFZW, a major European pension fund, divested from over 300 fossil fuel companies, including Shell, BP, and TotalEnergies, due to insufficient decarbonization plans.

Strategic Policy Engagement

The Oxford programme highlighted the importance of broader strategies, such as influencing government and regulatory policies. Jackson noted the increasing trend of investors engaging in policy issues as a way to manage risks effectively, ultimately benefiting their portfolios. A local example involved New Zealand fund managers lobbying for the Modern Slavery Reporting Bill, though the government has delayed it.

Engaging the Demand Side

Investors are also exploring engagement with the demand side of issues. For example, rather than only targeting BP directly, they could engage with BP's customers to reduce fossil fuel demand. Supporting NGOs working on relevant risks is another strategic avenue.

Need for Resources and Broader Participation

Jackson acknowledged the need for resources, noting that New Zealand's largest fund managers with dedicated ESG managers are leading the charge. He hopes to see smaller fund managers join the effort. The Aotearoa code is designed to be flexible, offering tools like an escalation toolkit for investors.

Future Directions

In the UK, the 20-year-old stewardship code is under review to make it less prescriptive, reflecting the need for a more strategic and adaptable approach to investor stewardship.

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