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Esgaia Software & Investment Stewardship Outlook 2023

In this blog, we outline Esgaia’s priorities for the new year and provide our take on where investment stewardship is set to go next. The outlook is based on client insights and extensive market research over the past year. We hope it will come in handy as you strategise around your priorities going forward.

Before we set sight on the future, let’s highlight some achievements in 2022:

In fall, we celebrated two years since the launch of the software,

As our journey continues, we will continue to help investors to become more responsible stewards of assets. And while progress has been made on many fronts, there is still plenty of room for innovation.

Software priorities for 2023

Our IT resources are split between software maintenance, enhancements and innovation. Starting with the former, our in-house tech-team works to ensure maximum up-time and that bugs are addressed with minimum delay. As it regards enhancements, aside from the continuous backend improvements, users can expect updates to at least the following features:

  • Website disclosure embeds

  • Outlook plugin

  • Voting module

  • Collaboration features

Innovation-wise, we will look to progress in partly the following areas:

  • ESG data & engagement prioritisation

  • Product customisation

  • Disclosures & reporting

  • User intelligence

Investment Stewardship Outlook

Throughout 2022 we have highlighted several studies and surveys on active ownership and engagement. While these tell different perspectives of investor practices, it is evident how better governance and resourcing, and more collaboration is leading to improved quality and legitimacy in efforts. We expect a year of continued strong growth for the strategy and its underlying elements.

- Here are five trends to keep an eye on in 2023:

  • Increased spend on human capital and technology To ensure commitments and resources line up, investors are prioritising investments in people, processes, and systems. While stewardship experts are experiencing a gold rush (high in demand and with strengthened power in their organisations), IT consultants and software providers are keeping busy meeting the needs for improved sourcing, management and reporting of data.

  • Redefined spheres of influence Acknowledging that resources differ, investors are that recognising responsible stewardship is about quality, not quantity. It is about optimising how you exercise your influence with investees, clients/suppliers, industry, civil society and policymakers. And not making it a numbers game, or ticking a box to satisfy stakeholders. For example, asset owners are increasingly setting out their expectations in relation to stewardship directly in the mandate terms.

  • Better coordination & more collaboration Just like the mindset shift of sustainability in business over the last decade or so, investors understand the importance of having an integrated process with clear mandates and accountability across ESG and investment teams. For example, emerging best practices expand on the roles of PMs and analysts to also encompass asset stewardship, - with specialist support from Stewardship teams - able to explain not only fund construction and investment decisions, but also the rationale of their ESG considerations and active ownership efforts. On the collaboration front, which is seen as a key lever of influence, the increase in depth and volume of shareholder interest is leading both investors and corporates to want more streamlined engagements. Positively, investors are increasing their participation and role in different collaborative settings, which helps to spread resources and costs, increased power, and scope to encompass broader value chain engagements.

  • Enhanced reporting and transparency The market is expecting better, more detailed disclosures from investors that accurately explain the organisational approach and the scale of activities undertaken. It is about engaging for influence not just information, for which effective reporting will separate such tracking, and make use of both qualitative and quantitative information with case studies. Transparency-wise, we are seeing more investors publicising engaged companies, providing vote rationales, and being more vocal around (lack of) progress through benchmarks, public statements, and so forth.

  • More power to the universal owner With a lack of progress on the policy front, investors are taking matters into their own hands by expanding their understanding and obligation of fiduciary duty. With three-quarters of institutional investors now believing ESG is a part of this duty, we might be able to start closing the sustainability and long-term value disconnect. That is, with 75-90 % of portfolio performance due to overall market performance, we are seeing positive signs of investors willing to forsake the returns of individual holdings if it's for the benefit and sustainability of the commons.

Good luck with the year ahead! If you need a sounding board to discuss all things engagement related, please don’t hesitate to reach out.

Onwards and upwards!

//The Esgaia Team


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