Stewardship ‘not being integrated into mandates’, despite asset owner concerns

Investment consultants say stewardship is “still not being integrated into mandates sufficiently” by asset owners, despite their acknowledgment of the importance of the issue, the Financial Reporting Council’s (FRC) head of stewardship, Claudia Chapman, has revealed. 

Chapman was speaking from her current role at the FCA, where she is in the middle of a six-month secondment in the UK financial watchdog’s ESG division. She is also serving as an adviser to the FCA’s asset management supervision team on stewardship. 

“We often hear asset owners [say] we need to hold to account our managers,” she said during a webinar on the 2023 proxy season hosted by UK campaign group ShareAction on Tuesday. 

She added that she had heard from investment consultants that this concern around stewardship was not being translated into mandates. “My understanding from speaking to investment consultants is [stewardship objectives] are still not being integrated into mandates sufficiently.”  

Chapman also argued that asset owners should use the “ultimate” sanction if a manager is not meeting their expectations when it comes to stewardship. 

“You have a choice of asset management,” she said. “Choose asset managers that align with your stewardship objectives, align with your values … If you’re not satisfied, then you do need to hold them to account and the ultimate way you can do that is through your choice.”   

She pointed to a recent survey the FRC was involved in, which concluded that shareholder rights in the UK are not being fully used. The FRC is the home of the UK’s Stewardship Code.  

ShareAction’s latest annual analysis of the proxy voting of the 68 biggest investment firms globally, published last month, found that average support for environmental and social shareholder proposals barely shifted in the UK (64 percent) and US (43 percent) in 2022. By contrast, average support among European-based investors jumped 12 percentage points to 81 percent last year.  

Stewardship regulation

Responding to a comment from another panel member about the need for more regulation around stewardship, Chapman stated that she did not “necessarily agree that more regulation is the answer”. 

She went on to discuss several “regulatory-led or sponsored” initiatives under way in the UK that will continue to “build momentum for action on environmental and social issues”. 

One of those was the industry-led Voting Reporting Group, which was announced by the FCA in October and is chaired by stewardship expert Deborah Gilshan. 

The group is made up of representatives from pension funds, insurers, asset managers, proxy advisers, investment consultants, registrars and issuers.  

It purpose is to propose “a voluntary comprehensive, standardised vote reporting template” for asset managers, Chapman said. 

Referencing the US Securities and Exchange Commission’s (SEC) NPX form as an example, she added that the idea is that the template will offer consistent “aggregatable” information “which will allow asset owners to see how asset managers have fulfilled their policies”. 

A consultation on the template is expected in the spring. 

Chapman acknowledged the importance of transparency and said “more may be needed” from companies and asset managers. But she added that transparency only takes you so far, noting that asset owners have to act on it.

“If asset owners really value stewardship and think voting and engagement that supports positive environmental and social outcomes is important, then it is within your gift to choose an asset manager whose voting action best aligns with your own stewardship objectives,” she said.  

She also pointed to other rights that shareholders have beyond shareholder proposals, such as voting against directors and auditors. “There are a lot of other shareholder rights that should and could be better used to hold companies to account and to support and encourage action towards positive environmental and social outcomes.”