According to the UN PRI, investment stewardship refers to the use of influence by institutional investors to maximise overall long-term value including the value of common economic, social and environmental assets, on which returns and clients’ and beneficiaries’ interests depend.
Eskimos has a lot of words for snow, so too does the responsible investing community have for investment stewardship and active ownership respectively. Closely related, the former is also commonly referred to as esg stewardship or investor stewardship, while the latter also goes by for example investor engagement, corporate engagement, ESG engagement, or in reference to the asset class: shareholder engagement, or fixed Income / bondholder engagement.
Investment stewardship encompass a variety of tools
In recent years, various soft and hard law initiatives have further tightened expectations of investors’ stewardship practices across asset classes. Commonly associated with activities towards investee companies, investment stewardship encompass a variety of tools, including exerting influence also over policy makers and other non-issuer stakeholders. So, while e.g. engagement historically has been principally concerned with the use of formal shareholder powers, such as voting, there are today a range of other ways investors can influence investee behaviour depending on the jurisdiction, type of enterprise and investment relationship.
To structurally progress on many challenging esg issues, we need a step-change in investment stewardship expectations that in turn result in desired actions from the investor community - the updated UK Stewardship code looks to set the direction. The code requires investors to focus and provide transparency on engagement activities and outcomes across asset classes, provide examples of voting, and expects collaboration with regulators and industry bodies to increase influence and address systemic risks. To power this development, investors’ stewardship activities are to be adequately resourced and governed, for example, as it regards systems, processes, and staff incentives.
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