Interview with Paul Chandler on Active Ownership and What Lies Ahead

Focus on opportunities and challenges, expectations, and roles for more effective investor stewardship.

As originally published in Esgaia's annual insights report in early February.

Q: What topics and outcomes are increasingly emerging in investors’ active ownership activities?

- Generally, we’re seeing a greater focus on systemic sustainability issues within investors’ active ownership or stewardship activities. Obviously, climate change is a key example of this, and one which continues to grow as a focus area, but topics like biodiversity, and various human rights-related issues like inequality, polarisation of societies, and equity and inclusion (not just diversity), are continuing to grow in focus.

Q: Collaboration is an important tool for increased influence. With a veritable myriad of engagement initiatives being launched in recent years, how do we ensure continued growth in collaboration and the impact thereof?

- Well, the first thing to say is that growth in this area is a good thing! Stewardship suffers from a collective action problem, in that everyone benefits regardless of how much work they put in, and we think that collaboration is the best way to address this. Mechanisms that pool investor resources to help divide responsibilities and drive the needed action are to be welcomed.

As we see more initiatives being formed, we hope to see a continued focus on strategies that can achieve real-world outcomes, particularly those that recognise that we need system or market-level change for many issues, not just improvements in risk management by individual investees.

Impact can also be aided through good use of the formal and informal institutions we already have. Be it making use of the PRI’s Collaboration Platform and other software tools, or simply by picking up the phone to investors and investor networks who have coordinated or been part of initiatives in the past, there’s much to be gained from not reinventing the wheel, or at least,

not completely reinventing it!

Q: Many speak of the sustainability challenges facing modern society as a market failure, accentuating the importance of effective public policy to set direction. What responsibility should we expect from financial market participants here in terms of advocacy?

- I couldn’t agree more that sustainability challenges are a market failure, and that public policy needs to be strengthened to improve this. Good public policy is often the most effective way to achieve progress on an issue – countless papers have been written about the effectiveness of carbon pricing, for example – so I think it’s on investors to use their voice and their influence to encourage this kind of policymaking. Policy engagement of this kind is in investors’ interest, helping to avoid systemic risks, but may also be required of fiduciaries, as the recent Freshfields, PRI, UNEP FI, and Generation Foundation report A legal framework for impact has found.

Q: Global efforts, including that of the finance industry, are falling short of agreed goals, which leads us to a couple of questions on advancing active owner practices and improving market dynamics:
- What are some concrete ways that will allow investors to focus more on critical systemic or society-wide goals and outcomes?

- Better conversations between different parts of the investment chain is one area to start. Asset owners can drive demand amongst investment managers for stewardship focusing on such issues. Investment managers can use their focus on systemic issues as a point of differentiation. Those with beneficiaries can work to understand their beneficiaries’ preferences on these issues, and through that process, explain to beneficiaries just how relevant stewardship is to protect

their investments by seeking change in the world.

I’d also add collaboration here too. Pooling resources, as we’ve discussed earlier, is a key tool to drive change more efficiently.

- How can we as an industry address some of the structural barriers to effective
stewardship such as short-termism, information asymmetry and corporate access?

- A similar list applies to this one. Better conversations, better demand for good stewardship from asset owners, and supply from investment managers. Others in the investment ecosystem, like pension regulators and consultants, also have a role to play here in encouraging practices that drive a broader, more long-termist, and economy-wide view of investors' roles and responsibilities.

One last question: Investors are today expected to measure impact across investment and active ownership activities, any thoughts on how investors should go about measuring this amidst a jungle of sustainability data and metrics?

- This is a really difficult question and one that others will have more technical answers to. From my side, I’d simply encourage more honesty and realism in tracking progress and communicating on it.

Firstly, be honest about what your goal is and why you’re doing it: Are you seeking to align your investments with your values? Are you seeking to drive systemic change?

Secondly, be clear about what you’re putting into achieving your goal: How are you working to achieve your goal? What resources are you putting into that?

And thirdly, be honest about what you’ve achieved, what you haven’t, and how much you can attribute to your own actions (even if small): Achieving real-world change on complex issues isn’t a simple linear process, and we need to be honest about that. Instead, communicate clearly on progress towards key goals and explain how results you’ve achieved so far fit into a broader theory of change for how the outcome will be achieved.

We thank Paul for his contributions and great insights!

Interviewer: Rickard Nilsson, Director, Strategy & Growth, Esgaia Interviewee: Paul Chandler, Director of Stewardship, UN PRI.