Asset owners are increasing their demands for their managers over ESG, and are already walking away from large mandates.
Far from abandoning ESG in a challenging political climate, many asset owners are doubling down.
The need for effective stewardship is clear, as shown by a recent letter to the Financial Times, by Oxford Economics associate director Jake Kuyer. He explained that after testing ten years of market data, his firm could identify “a statistically robust relationship between exposure to indirect climate risk and total portfolio returns”. In other words, ignoring climate risk could cost investors real money.
Investors are taking action. In February, a group of institutional investors from across the world with $1.5tn in funds ordered asset managers to increase their efforts on climate change or risk losing their mandates.
“It is important that asset owners maintain their course throughout this difficult period and hold their fund managers accountable for delivering a robust climate stewardship strategy that ultimately delivers value for its members”, Leanne Clements, Head of Responsible Investment at the People’s Partnership – a UK workplace pension provider – told the FT.
State Street is already feeling the consequences of failing to meet client demands over ESG. The manager made headlines in 2024 over its decision to leave Climate Action 100+. The CA100+ is an investor-led initiative that aims to press the world’s biggest emitters of greenhouse gases into climate action.
The People’s Pension – which is provided by the People’s Partnership – moved £28bn of assets out of State Street in February, citing misalignment over stewardship.
State Street has also lost business with Danish pension fund AkademikerPension, which said that its asset managers “must align with our fundamental approach and way we see the world”.
Measurable Stewardship Outcomes for Asset Owners:
Asset owners are moving beyond box-ticking towards seeking measurable stewardship outcomes.
Owners are shifting their focus away from surface-level engagement. They are instead demanding concrete evidence to demonstrate how stewardship drives long-term value creation.
They’re also looking for data-driven accountability. Asset owners now expect granular stewardship data that can be audited and interrogated. The data must link engagement efforts to tangible outcomes, ideally using reporting frameworks and delivering transparency.
In March, the aforementioned investor coalition stated that this can take place on two levels: value chain/sectors, and companies.
The coalition argued that prioritisation should be given to sectors that are essential to achieving a low carbon economy. This includes fossil fuel-dependent sectors and sectors linked to forest-risk commodities.
At a company level, meanwhile, more emphasis needs to be placed on engagements over companies meeting their net zero commitments, it continued. Focus also needs to be applied when assessing companies’ sector-specific decarbonisation strategies, it said.
Technology as an Enabler:
The coalition also argues that stewardship needs to be appropriately resourced. This includes data access, tools and applications backed by investment in IT infrastructure.
Industry and regulators are stepping up. The Financial Conduct Authority’s Vote Reporting Group and the Pensions and Lifetime Savings Association have created a new voting reporting template.
The VRG and the PLSA say that the template improves vote reporting quality and consistency, and enhances engagement. It will also reduce reporting costs for asset managers, they argue.
But achieving optimal stewardship outcomes will require best-in-class technology that will take the industry beyond analogue templates. Asset managers will need to embrace digital solutions such as Maanch to streamline engagement. Platforms can also help track outcomes, and align efforts across the investment value chain. Where traditional stewardship has relied on manual tracking and siloed systems, modern tools offer clarity, consistency, and efficiency.
Where engagement and reporting can be a burden, technology will be an enabler.
If you would like a demonstration of the Maanch Engagement Tracker, please book an introduction with our founder and chief executive officer Darshita Gillies via this link.
