In the last decade, the investment market has seen significant changes in approaches to ESG and stewardship. Stewardship (or engagement) concerns the responsible oversight of capital to generate long-term impact returns across the ESG spectrum. By using their own capital across sustainability themes, geographies and industries, investors are able to effectively generate positive economic, environmental and societal benefits. With an increased emphasis on climate change and social factors, in addition to governance, investors are more actively undertaking stewardship and as such, minimising systemic risks. The definition of stewardship continues to broaden and include both greater topics of focus and methods of engagement (including voting and sustainability surveys).
The 2020 Stewardship Code
In 2020, the Financial Reporting Council released the second edition of the Stewardship Code. Using a set of 12 ‘apply and explain’ principles, the UK Stewardship Code 2020 (The Code) sets engagement standards for asset owners, managers and service providers in the space– setting minimum expectations for the industry. The Code provides guidance on engagement activity and effective reporting to better understand the engagement approach adopted by each signatory. The Maanch Engagement Tracker (ET) is a helpful tool created for investors to more effectively log engagements and measure their impact in accordance with the 2020 UK Stewardship Code.
As Jeannette Andrews and Mark Chappel from Legal and General Investment Management discuss in their podcast ‘Is the new Stewardship Code 2020 the greenwashing killer we’ve all been waiting for?‘, the benefits from the updated code are twofold. Firstly, the code allows for a greater market understanding of stewardship expectations. A second benefit is that consistent reporting from all signatories results in greater transparency amongst investors in the market and investment clients.
Updates to The Code in the Last Decade
The 2020 edition of The Code requires annual reports on stewardship outcomes and impacts. The new code adopts an ‘apply and explain’ approach, more stringent than the 2012 code’s ‘comply or explain’ requirement– meaning all signatories must now adopt all parts of the code, rather than picking and choosing elements. The latest version of the code expands the definition of stewardship to encompass not just public equities but also fixed income and real assets. It also widens its reach to holdings in and out of the UK. One other notable change is the introduction of client needs to the code– illustrated by the addition of principle six. With a wider reach and more stringent compliance measures, the 2020 Code provides asset owners, managers and service providers with greater guidance on engagement and its successful implementation.
The Code Principles and the Maanch Engagement Tracker
1) Integration of Stewardship and Investment
As outlined by principle seven in The Code, signatories are expected to systematically integrate stewardship and investment. Part of this integration involves effectively monitoring all interactions between stakeholders (portfolio managers, clients etc.) in the space. The Maanch Engagement tracker makes monitoring engagements– from general interactions to voting– a seamless and standardised process. On the Maanch ET, users from different teams (across the globe) are able to efficiently record interactions and flagged issues with a portfolio company– highlighting ESG topics, marking issue actions and milestones, and organising meeting notes. The Maanch ET turns unstructured engagements into easily digestible data to enhance interactions and reporting.
2) Clear Measurement and Reporting
In addition to efficient recording, principle six of the Stewardship Code emphasises the importance of clear reporting to clients and other stakeholders. The Maanch ET generates real-time impact insights from inputted engagement data– making reporting easier and more accurate. Through the ET activity log, users are able to trace and explain every stewardship (and related investment) decision.
The Code further introduces some guidelines for reporting, including a review of reports provided by early signatories. The Review of Early Reporting showcases case studies of stewardship activity and highlighted improvements namely demonstrating continuous improvements and better disclosing engagement outcomes. In line with guidelines provided by the FRC 2020 Stewardship Code, the Maanch ET generates engagement insights across a variety of impact metrics. Company-specific engagement summaries as well as fund- and company-level engagement summaries are automatically generated on the platform. These visualisations are easily exportable, catering to both clients and investors.
3) Collaborative Engagement
By nature, stewardship is a collaborative process. Principle ten of the Code draws attention to collaborative engagement and its value. The Maanch ET streamlines collaboration within a company by allowing all users to view and input their engagements, updating dashboards in real-time. Once an issue or interaction is added into the system, any company user can view this data, searching for it by company or ESG topic. They are able to view details such as meeting notes, whilst also understanding high-level engagement information through digestible visualisations tracking engagements by SDG, ESG topic, sector and geography. All data on the ET is standardised and directly aligned with the GRI taxonomy.
If you would like to know more about Maanch’s Engagement Tracker, or are an investment professional interested in attending our upcoming Effective Engagement Roundtable event, please get in touch with Heer at heer@maanch.com.
Blog by Maanch team member Heer Baxi.
