The Next Chapter in Investment Stewardship: A Conversation With Dr. Hans-Christoph Hirt

Enjoy this insightful conversation between Dr. Hans-Christoph Hirt and Esgaia’s Head of Stewardship Success, Rickard Nilsson. Hans shares his expertise on stewardship and the investment chain, offering valuable perspectives on how evolving market dynamics are shaping investor practices and what lies ahead.

Currently, Hans serves as a non-executive director and trustee of the Hermes Group Pension Scheme, an advisory partner at Fidelio, and a senior consultant at Arkadiko, based in London. He is also an investment advisory committee member at WHEB, an impact-focused asset manager, and a member of the FCA’s Listing Authority Advisory Panel.

Q: Sustainable finance and responsible investing is experiencing perhaps its most challenging phase ever with the politicization of ESG and a changing political landscape globally. How is this shaping investor stewardship practices, in your view?

The politicization of ESG has added complexity to investor stewardship, reshaping priorities and execution. As regulatory approaches diverge—some reinforcing ESG integration while others pushing back—investors must navigate a fragmented landscape while balancing public expectations and client interests.

This shift is prompting stewardship teams to refine their engagement strategies to align with fiduciary duty, evolving regulation, and stakeholder expectations. There is also growing recognition that policy-level stewardship is essential for addressing sustainability challenges. The backlash against ESG, particularly in the U.S., has heightened scrutiny of stewardship activities, forcing asset managers to navigate regulatory, political, and stakeholder pressures. The term ESG is likely to fade, raising the question of what future-proof terminology the PRI should adopt in its principles.

Meanwhile, institutional investors continue to engage with companies and regulators, increasingly framing stewardship—including on sustainability—around long-term value creation. For example, a recent statement from asset owners on climate stewardship emphasized financial materiality and the importance of policy-level engagement in enabling sustainability transitions.

The UK Stewardship Code consultation (closed on February 19) reflects this evolution, reinforcing long-term value creation for clients and beneficiaries while acknowledging broader economic, environmental, and societal benefits. Overall, these developments are driving a more strategic, financially focused, and resilient approach to stewardship.

Q:. On the other hand, investment stewardship as a strategy continues to grow, partly because of the impact angle but also because of greater ambiguity, I feel. What’s your view?

Investment stewardship has expanded significantly over the last decade, not only because of its perceived ability to create or protect value but also due to its evolving scope. A key driver of this growth is the recognition that stewardship can help mitigate systemic risks, such as climate change and biodiversity loss.

Universal ownership theory suggests that diversified investors have an incentive to address such risks given their broad, long-term market exposure. However, quantifying stewardship’s benefits and linking them to investment outcomes remains challenging. Systemic risks unfold over long time horizons, their financial impact is difficult to isolate, and they are shaped by evolving policy, regulatory, and technological factors.

This expansion also raises questions about the business case for engagement. Too much company engagement lacks a clear link to investment theses or demonstrable long-term value creation when supportive regulatory frameworks are absent. In response, stewardship has broadened beyond company-level interactions to include policy advocacy and industry-wide initiatives. Yet without clear success metrics and an overarching theory of change, the impact of stewardship may not always be fully recognised by asset owners when allocating capital.

That said, this ambiguity also creates space for innovation. As investors seek to better measure and communicate the value of stewardship and align it with investment outcomes, we are seeing a closer integration of stewardship professionals into investment and policy teams—an encouraging trend.

Q: While investment stewardship has a strong theoretical narrative, there are trade-offs and misalignments between asset owners and managers over benefits and costs. What’s your view?

The misalignment between asset owners and managers is a fundamental challenge in investment stewardship. Asset owners—such as pension and sovereign wealth funds—typically have long-term investment horizons and systemic concerns, while asset managers operate under competitive pressures that often prioritise shorter-term portfolio performance or cost efficiency.

A key challenge is the trade-off between company-specific performance and systemic risk mitigation. Some engagements focus on enhancing company and portfolio returns by addressing material issues like capital allocation, governance, or decarbonisation over a three- to five-year period. Others aim to mitigate broader systemic risks—such as the market-wide effects of climate change—where financial impacts unfold over much longer timeframes. While these approaches can align, tensions over time horizons often arise. BP’s recent experience illustrates this: its push into renewables and related capital allocation decisions may have compromised short-term shareholder returns.

Company engagement alone has limitations in addressing systemic risks, particularly when corporate incentives conflict with broader market stability. This is why macro-stewardship—policy engagement, regulatory advocacy, and market-wide initiatives—is essential to complement company-level interventions.

Another key friction point is the cost of engagement. Stewardship, whether company-specific or policy-focused, requires dedicated, skilled teams. Yet asset managers must justify these costs, particularly when benefits are difficult to attribute directly to returns. This often leads to a box-ticking approach, where engagement becomes more about compliance than actual value creation or protection.

Climate-related engagement highlights these tensions. Some asset managers lag behind asset owner expectations, reflecting broader inconsistencies in stewardship priorities. To address this, asset owners could more systematically integrate stewardship into their asset manager selection processes. Encouragingly, a recent asset owner statement underscored this, but the real test will be whether it translates into action.

Q: You have been involved in investor stewardship for a long time and have seen the pendulum swing in capital markets between a shareholder- and a stakeholder-centric approach. What have the key implications been for investors?

The shift from a shareholder-focused to a more stakeholder-centric approach has profoundly impacted investor stewardship, weakening alignment across the investment chain. Two decades ago, when I started at Hermes’ activist Focus Funds, engagement aimed to protect or enhance company value for shareholders and beneficiaries. Asset owners, portfolio managers, and analysts shared this objective. Today, that alignment has eroded—not just between asset owners and managers but across the entire investment ecosystem.

A key reason is the growing ambiguity around stewardship objectives and increasing scrutiny of its effectiveness. Misaligned priorities and unclear mandates have led to engagements that often lack a clear business case, alignment with the investment thesis, or evidence of long-term value creation. As Professor Paul Davies (University of Oxford) observed in his analysis of the 2020 UK Stewardship Code, the purpose of stewardship appears to have shifted from ‘saving the company’ to ‘saving the planet.’ While these goals are not necessarily in conflict—long-term value creation and sustainability often reinforce each other—investors must ensure that stewardship remains grounded in their primary duty to clients and beneficiaries.

The expanding scope of stewardship, with an ever-growing range of ESG topics, has also exposed the limitations of company-level engagement. As discussed in the answer to Question 3, macro-stewardship—policy engagement and systemic interventions—is essential for addressing market-wide risks like climate change. Investors must be realistic about what company engagement can achieve and ensure stewardship strategies are guided by a well-defined theory of change that aligns with investment objectives.

This issue is particularly relevant in the UK, where the FRC’s revised Stewardship Code seeks to enhance clarity. The key question remains: can asset owners and managers establish a shared understanding of stewardship’s objectives, key strategies, and its effectiveness and limitations? The recent asset owner statement of climate stewardship rightly underscores this challenge. Without such alignment, stewardship risks becoming a compliance exercise rather than a meaningful driver of investment value. Achieving this clarity requires not only well-defined expectations but also a more rigorous assessment of stewardship outcomes—ensuring that engagement delivers tangible benefits to the ultimate beneficiaries of the underlying investments. 

Q: In a recent article for IPE, you note how “Engagement should return to first principles.” Can you elaborate on this a bit? Perhaps on what this ought to mean for investor stewardship strategies navigating the changing tides of stakeholder demands?

Returning to first principles means refocusing stewardship on its core objective: driving long-term value creation for companies and shareholders in a way that benefits asset owners and end beneficiaries. Over time, shifting stakeholder demands, regulatory pressures, and political debates have diluted engagement’s fundamental investment purpose.

To advance stewardship effectively, the industry must engage in an open discussion about its principal objectives, trade-offs, and limitations. A shared understanding across the investment chain is essential—one that evaluates engagement primarily in terms of investment outcomes, its impact on ultimate beneficiaries, and the associated cost-benefit trade-offs.

Systemic risks demand a more sophisticated macro-stewardship approach, incorporating policy engagement and market-wide initiatives. Asset owners should take the lead by embedding clearer stewardship priorities and expectations in investment mandates, ensuring that asset managers are equipped to deliver effective engagement at both the company and policy level—enhancing investment outcomes over relevant time horizons.

Rather than stewardship becoming a reactive or compliance-driven exercise, it should create tangible value. The UK Stewardship Code revision is a step in this direction but could have done more to align expectations across the investment chain, particularly by fostering a more sophisticated approach to investment mandates. The ongoing ESG debate should serve as a catalyst for honest discussions between asset owners and managers on these critical questions.

Bio - Hans-Christoph:

With over 25 years of experience in corporate governance and law, sustainable investing, activism and stewardship, Hans advises company boards, management teams, and institutional investors. He teaches at leading universities and business schools and contributes as guest faculty to IMD’s flagship High Performance Boards programme. A recognised expert and accomplished author, he co-edited a major 2023 publication on stewardship and sustainability in investment management.

Hans previously held leadership roles at global asset management firms, including as Managing Director in Sustainable Investing at UBS Asset Management. He also served as the Managing Director and a board member of EOS at Federated Hermes, a leading provider of engagement and voting services, where he spearheaded the growth in assets under advice to more than $1.6 trillion. 

Prior to entering the asset management industry in 2004, Hans practised corporate law at international law firm Ashurst and held academic positions at the London School of Economics.