There were 168,000 investor-corporate engagement meetings last year, according to the Principles for Responsible Investment – but the initiative says active ownership/stewardship as it is currently practised isn’t working as there is little investor willingness to act more “assertively”.
Pointing at “investor myopia” for limiting the potential of stewardship, it has put together a paper setting out the case for an “aspirational higher standard for evolved active ownership”.
“Many institutional investors have been reluctant to use the influence they have.”
This would be where investors work to deliver real-world outcomes on critical systemic issues using “strengthened collaboration”.
There are echoes of the “forceful stewardship” term coined by Raj Thamotheram and Howard Covington a few years ago that has been picked up by UK pensions body the PLSA and, more recently, by Jeffrey Sachs’ Columbia Center on Sustainable Investment (CCSI).
“We will shortly invite signatory input on this vision and ideas on how we can collectively take active ownership to the next level,” writes Paul Chandler, Director of Stewardship at the PRI.
The PRI notes the progress of initiatives like Climate Action 100+, but says there are the “exception, not the rule”.
“As we face growing systemic risks that cannot be diversified away – from trade wars to climate catastrophe – the willingness to act more assertively to safeguard long-term outcomes for beneficiaries is not keeping pace with the actions needed or being undertaken at the scale required.”
Chandler says: “We strongly believe that stewardship is the most powerful tool investors have at their disposal to align our economy and society with the interests of beneficiaries and wider stakeholders. The problem is, we’re not using it to its fullest potential.”
He lists the ways investors can deploy stewardship: propose and vote on shareholder resolutions; sign off on executive pay; appoint board members; engage with governments/regulators.
“The problem is, on aggregate, investors’ collective influence – their stewardship – is at serious risk of failing to deliver both the long-term returns and the society and environment that is demonstrably in their ‘best interests’.
“The ills of society continue because many institutional investors have been reluctant to use the influence they have. Where they have used this influence, they’ve taken tentative steps, focusing on the short-term and on individual holdings in their portfolio rather than the bigger picture.
“Exacerbating this problem is that many investors have not properly resourced policy advocacy functions that could move the needle on some of these issues.”
The PRI, which has been upping its policy work of late, will invite input from its 2,735 signatories (latest signatory: Stichting Pensioenfonds Robeco). The report makes one reference to the stewardship codes that have sprung up in the past decade.
Over the next year it will add further guidance on practical implementation – particularly where it comes to investors’ proxy voting and real-economy policy advocacy.
The PRI will also work to align its reporting and assessment framework to “encourage and reward” stewardship leadership.