Along with broader issues around greenwashing, the whole stewardship proposition is, quite rightly, clearly under industry scrutiny at the moment.
Inadequate stewardship resourcing, an overemphasis on both quantity versus quality and company versus industry/policy engagement, as well as an inability to track progress on real world outcomes, are just some of the criticisms levelled at the investment community, notably those systemically important financial institutions on the shareholder register of most companies in the global market.
If I am honest, I believe these claims are justified, and corrective action is urgently needed.
But what about skill sets? This issue was recently explored by a panel I was on at the RI Europe conference in June.
Implementation has become exponentially more challenging over the past few years, with evolving issues, data sets, frameworks, products (the list goes on) for responsible investment colleagues to grapple with. The investment case for specialists in this complicated landscape is obvious.
But what about the generalists, the ones that have great general knowledge but not to the depth in any one area, as a specialist does. Do they have a place in this new era of responsible investment?
I am a generalist, so this is a question that hits home. In the asset owner space, leading a responsible investment team, retaining that systemic, helicopter view is quite important, a perfect role for a generalist.
As technical specialists work in their SME areas, in tandem we also need change agents to gather “coalitions of the willing” to address systemic barriers to a more sustainable financial system. This is potentially another important role for the generalist.
Alexandra Mihailescu Cichon of RepRisk said recently: “ESG has flaws, but it’s the most important change-management exercise of our time.” I completely agree, and we must applaud our RI change agents for the efforts they have undertaken thus far to address complicated industry challenges.
Being an effective change agent is no easy feat. Are these skills that we need to further develop as an industry? It is a question that I ask of myself.
One thing that is certain to me is that we need many more, with improved industry co-ordination focusing on a few targeted issues rooted in a robust prioritisation framework (or to use industry speak, “theory of change”). Overall, we cannot continue to reply upon the few change agents in this industry to do the heavy lifting.
Examples of industry-led co-ordination that we need many more of are the Global Investor Commission on Mining 2030, the Investor Coalition of Equal Votes, and the UK Asset Owner Council’s Corporate Governance Group. These cannot be exceptions to the rule, but rather the industry norm, with appropriate stewardship resourcing to reflect this.
Policy engagement
Speaking of industry co-ordination and a targeted approach, this leads me to my reflections on climate policy engagement.
I think many UK asset owners will understand my predicament when it comes to this vitally important area. It is fairly undisputed that policy engagement is an important part of the investor stewardship toolkit (especially for asset owners at the top of the investment chain) and is rooted in a robust theory of change.
The way I enact that theory of change is through membership in valuable organisations such as the IIGCC, the UKSIF and the PRI through their policy engagement activities. But I question whether there is more that I could be doing. It is true that policy engagement has delivered a lot of positive change over the past 20 years, but the perception of its effectiveness is under scrutiny at the moment.
As 2030 looms, I think it is time for us to conduct a massive industry review on the effectiveness of our climate policy engagement activities thus far: what has worked, what hasn’t and where we should go next.
A lot of policy engagement is focused on letter writing to high-level government officials by multiple stakeholders. But after the letters are sent, are we deploying the experts in our community in a co-ordinated way to the experts in government, deepening that engagement over time to build trust and consensus?
Ultimately, we need the engagement to resonate with multiple policymaker stakeholders (from cross-departmental, high-level officials to technical specialists) and so a multi-pronged engagement approach is necessary.
Change agents
This brings me full circle to the change agent remarks I made earlier.
For effective climate policy engagement, we need a critical mass of asset owner change agents, supported by technical specialists, where collectively a wider range of expertise and skills are represented, drawn from different parts of the investment chain. This will allow the coalition to draw upon individual subject matter expertise as and when needed, thereby reducing the burden on a select few individuals.
And what about the “long tail” of schemes with limited to no RI resource? A couple of recommendations:
Become a member of organisations such as the IIGCC, the UKSIF and the PRI, which are doing great work in the climate policy engagement space and could use additional AUM to exert even greater influence. And let’s not forget reducing the regulatory reporting burden as a critical policy/regulatory engagement objective, which will help free up the stewardship value chain to focus on the things that matter.
Hold your external fund managers to account for taking a leading stance on climate policy engagement, notably passive managers where this should feature quite prominently in their stewardship approach. Ensure that your advisers embed this criteria into manager due diligence and monitoring processes.
Only through co-ordinated action and a targeted approach can we successfully address the systemic sustainability challenges that our industry faces.
Leanne Clements is head of responsible investment for People’s Partnership, provider of The People’s Pension.
