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7 Ways Investors Use Esgaia's Software to Meet UK Stewardship Code Requirements

Applicable for those who invest on behalf of UK savers and pensioners, the updated UK Stewardship Code sets high expectations on investors’ stewardship practices. Even if voluntary on paper, much like with stewardship codes in other regions, requirements in the Code receive broad market uptake as e.g. many UK-based asset owners would demand Signatory status of those who run money for them.

Out of the original applicants, two-thirds made the first cut. With the next application deadline coming up on 30th of April 2022, we suspect many investors to be hard at work with their applicant/compliance reports, or their annual stewardship reports, as these can be one and the same.

In this blog post, we outline how Esgaia supports UK Stewardship Code signatories in fulfilling their commitments.

Policy statements are not enough

In November 2021, FRC issued guidance on effective stewardship reporting, with examples from the first reporting instance, setting expectations for 2022 applicants. According to FRC, most of the organisations that did not fulfill the criteria of becoming a signatory in the first round relied too heavily on policy statements, and the FRC would also like to see improvements to reporting on the management of market-wide and systemic risks, as well as approaches to stewardship in asset classes other than listed equities. Importantly, with the applicant reports being the only material the FRC evaluate alignment against the principles with, the code put a lot of importance on reporting, and the ability to display and exemplify activities and outcomes, and not just high-level policy commitments.

From an engagement perspective, the code does not prescribe a single engagement approach, but rather asks organizations to increase their transparency on how they - or those that engage on their behalf - practice it. Esgaia supports investors' compliance with the Code in several ways. Below, we outline key platform functionality for investors looking to become, or remain a signatory of the Code.

Principle 2: Governance, resources, and incentives “Signatories should explain how they have appropriately resourced stewardship activities, including their investment in systems, processes, research, and analysis."

By using Esgaia’s purpose-built software, signatories indicate that they have invested in suitable infrastructure that enables a more structured approach to the engagement process. The Software-as-a-Service model inherently provides for proof-of-concept, with continuous client-informed improvements aligned with evolving best practices. The cloud-based system and use case centric functionality help improve efficiency, transparency. and coordination across the organisation.

Principle 4: Promoting well-functioning markets “Signatories should explain e.g. how they have identified and responded to market-wide and systemic risk(s), as appropriate; the role they played in any relevant industry initiatives in which they have participated, the extent of their contribution and an assessment of their effectiveness, with examples”

The platform allows you to record activities across different entities, meaning you can capture much of your contributions across individual or thematic engagements - addressing systemic issues and root causes by targeting different actors across specific value chains -, networks participation, working groups, policy advocacy, and so forth.

Principle 6: Client and beneficiary needs Signatories take account of client and beneficiary needs and communicate the activities and outcomes of their stewardship and investment to them.”

In a three-part blog series covering the engagement process, one entry covers reporting and disclosures. Therein, we discuss expectations and best practices, including perspectives on reporting objectives and stakeholder groups, information types and intent of use.

Principle 7: Stewardship, investment, and ESG integration “The interaction between teams, including portfolio managers and ESG specialists, should be explained.”

The Code highlights that signatories should explain how the interaction between different teams takes place. In our experience, many investors struggle with this collaboration and information sharing between relevant internal stakeholders - achieving an efficient workflow where data is easily accessed with systematic records of interactions can be accomplished in a shared cloud-based environment, such as Esgaia's platform.

Principle 9: Engagement “Signatories should describe the outcomes of engagement that is ongoing or has concluded in the preceding 12 months, undertaken directly or by others on their behalf.”

The Code strives for transparency and reporting exemplified through case studies, activities, and outcomes. In our software, investors benefit from functionality such as:

  • ability to link activities and progress evaluation to objective-specific engagements, for which a systematic record and timeline of activities is created.

  • customizable milestone or KPI frameworks for monitoring progress against identified objectives.

  • listing outcomes for concluded engagements, and potential investment implications at your end.

  • data logs of all activities (phone calls, meetings, site visits, etc.) and counterparties (Board, C-suite, IR, Operational management, etc.), captured in e.g. statistics dashboard.

  • PDF case studies, which offer a quick way to exemplify engagements to certain stakeholders

Principle 11: Escalation: “Signatories, where necessary, escalate stewardship activities to influence issuers”

In our second blog post on evolving expectations and market practice in the engagement process, we provide a spotlight on the initiation phase, monitoring, and escalation.

Investors today struggle with oversight and monitoring of engagement activities, making timely follow-ups harder, which can undermine your ability to excert influence in the first place. Using Esgaia’s software, investors can support escalation strategies by setting deadlines on both engagements and milestones, and follow-ups on certain activities. Users then get notified on upcoming deadlines, both in the system and via email.

Principle 12: Exercising rights and responsibilities “... the Code encourages complete disclosure of listed equity voting records …”

One of the most common ways for investors to try and influence companies and exert their rights as a shareholder is by voting at AGMs. Also here, the updated Code is looking to improve transparency and accountability by demanding public voting records. In order to improve alignment between engagement and voting activity, it is possible to import voting data to link specific votes to engagements, and for coherent reporting of active ownership activities.

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