James Corah is head of sustainability at CCLA Investment Management
In February, the Investment Association released “Realigning stewardship: Delivering sustainable value through stewardship”, the final report of their stewardship working group, on which I was fortunate to sit.
To steal the words of Responsible Investor, this landed with a “splash”, causing significant debate among our industry on the role of stewardship.
For me, one of the key recommendations set out by the document was that: “The assessment and oversight of stewardship quality should be based on outcomes linked to value creation rather than activity metrics (such as votes against or number of engagements).”
Underpinning this is a concern that runs through the report: that current frameworks for assessing the quality of stewardship “incentivise performance driven compliance over value-driven stewardship”.
While it is widely understood that stewardship is a key part of the service that many asset managers provide to their clients, the quality of stewardship is notoriously difficult to discern.
For this reason, many industry actors use voting records – the most visible part of a stewardship process – as a proxy for assessing the quality of stewardship.
This is clearly a popular approach, with ShareAction and the work of the UK Asset Owner Roundtable providing two examples of how voting records can be used to test asset managers’ alignment with the requirements and values of underlying investors.
On the positive side, this has led to far more scrutiny on how voting rights are used, and has increased the level to which wider ESG stewardship concerns are reflected in voting.
However, on the negative side there is clearly a fear in the industry that the increased visibility has driven a rise in so-called “virtue-signalling” and “performative voting”.
Misaligned stewardship
To explain, the concern is that the scrutiny on voting has led to a growing trend where investors over-weight reputational concerns (related to how voting in a certain way will make them look) and under-weight investment factors when considering how to lodge their vote.
This practice decouples voting from the wider stewardship and investment process, with the primary aim of managers undertaking this practice being to look aligned with the values and requirements of clients and beneficiaries.
“There is clearly a fear in the industry that the increased visibility has driven a rise in so-called ‘virtue-signalling’ and ‘performative voting'”
While in some cases well meaning, this is potentially a very dangerous phenomenon. Divorcing voting from wider investment practice cheapens the stewardship process and diminishes the value of the rights we are fighting to protect. It devalues stewardship from being a core part of the value proposition to a veneer that is dictated by fad and fashion.
But it is not just asset managers that are at risk of falling into the grips of style over substance – the growth of “pass through” voting risks doing the same. By delegating voting power to the underlying client we again run the risk of reducing the role of voting to virtue-signalling.
To be clear, I am not saying that we shouldn’t empower the underlying beneficiary or client to inform the stewardship process – quite the opposite. As the guardians of other people’s money, our industry has a duty to ensure that everything we do aligns with our clients’ and beneficiaries’ needs.
But just delegating a voting decision does not do this. It leads to misaligned stewardship programmes and reduces the ability to effectively drive the change that these clients wish to see.
As an industry, this is something that we need to stop.
Progressive values
While “performative voting” is a problem that we need to address, when doing so we need to avoid banishing the – sometimes idealistic – “progressive values” of clients and beneficiaries driving it. For me, paradoxically, this means legitimising the concept of “performative stewardship” as a genuine change tactic.
In academic terms, “performativity” is often associated with post-structuralist thinkers such as Bruno Latour. For them, a performance isn’t just “signifying” something, it is “an intervention” that affects the networks within which we operate.
In essence, because “all the world’s a stage”, we are not passive spectators, sat in the audience letting the performance pass over us. Instead, we are involved – we are living through the performance – and, because we are involved, the performance changes us.
This is the same with “values-driven” stewardship. It might seem to be unrealistic or look like virtue-signalling, but because it exists – and it interacts with our industry and the companies we invest in – it can drive the change our clients and beneficiaries wish to see.
Therefore, when it comes to evaluating the future of stewardship, the question we should be asking ourselves isn’t whether performativity is a legitimate change tactic. It is. Instead, we should question the motivation for the performance?
Beyond voting records
This brings us back to voting reports. The problem with “progressive voting” isn’t that it is “performative” or unrealistic. It is that, when cut off from a wider stewardship programme, it is done without the support it needs to achieve the client’s goal.
So, for me, the outcome of the IA’s Stewardship Working Group’s report shouldn’t be to disincentivise progressive voting or to discourage organisations like ShareAction from studying voting trends. This is important work.
Instead, it should be to push them to go further. We need their assessments to recognise that purposeful stewardship is deeper than a voting record.
This is why the IA Report should not be read as a permission to be less ambitious but as a challenge to all of us to ensure that the “whole stewardship programme” – not just its most visible part – is aligned with the needs of our clients and beneficiaries.
Because if the whole world is a stage, let’s make sure that we are genuinely playing the part our clients want us to play.
