‘Under-resourced and ineffective’: Industry leaders deliver gloomy verdict on stewardship

Will Martindale warns about low quality stewardship and poor resourcing of engagement efforts by investors in new book.

A range of responsible investment experts have voiced concerns about the state of stewardship in a new book by Will Martindale, formerly head of policy at the Principles for Responsible Investment (PRI) and co-head of sustainability at Cardano.

Martindale’s book, Responsible Investment: An Insider’s Account of What’s Working, What’s Not and Where Next, covers a broad swathe of responsible investment topics, including several detailed sections on stewardship.

Martindale himself paints a somewhat pessimistic picture, warning that his overall experience of stewardship is “not a particularly positive one”. While some meetings involved well-briefed investors and engaged companies, resulting in constructive decision-making, he said those were the exception.

Companies are not incentivised to put forward senior staff, investors are “on the whole not well-briefed” and escalation is unlikely. He added that the switch to remote meetings has harmed relationship-building between investors.

“While investors go through the motions on stewardship, much of current practice is ineffective,” he added.

Martindale is complimentary about the UK’s stewardship code, but notes that the strict assessment process can be nerve-wracking. “It makes for a nervous day, refreshing emails and waiting for the results,” he said. “A few asset managers rejigged their staff in the weeks following.”

Stewardship resourcing – an issue the PRI is currently investigating – is also a big topic.

Claudia Chapman, formerly head of stewardship at the Financial Reporting Council and now State Street Global Advisors’ head of EMEA stewardship, commented that “everyone is always lamenting how little resource for stewardship there is” and those in the field “work hard and are stretched thinly”.

“If investors are as committed to their stewardship objectives as they say they are […] and we believe stewardship to be an effective tool to achieve change, then the profession needs to be better-resourced,” she added.

Equally, Roger Urwin, global head of investment content at Willis Towers Watson, told Martindale that “stewardship is not well-resourced and not well-delivered”.

“We don’t invest enough in stewardship where the value is a positive sum, particularly the systemic stewardship at the industry and public policy level,” he said. “We will need to increase our resources and focus for the sustainability challenge ahead, particularly on climate and net zero.”

Turning to company action, Nathan Fabian, chief sustainable systems officer at the PRI, warned that the rollback of climate commitments by oil and gas majors represents “a threat to responsible investment as a concept”.

“It’s the same threat that responsible investors were already aware of,” he said. “That policy-making doesn’t always align with planetary boundaries and international frameworks on rights.

“We’ve known about it for over 20 years on climate policy. Perhaps in recent months, with energy supply issues arising from the war, the need to keep the heating on through winter, and pandemic recovery it’s been a more acute set of issues than we’ve been used to dealing with previously.

“But it’s already an inbuilt assumption into responsible investment that policy will fluctuate.”

Review: Responsible Investment: An Insider’s Account of What’s Working, What’s Not and Where Next

Will Martindale

Part memoir, part textbook and part manifesto, Martindale’s book offers a good overview of the responsible investment landscape and its history, as well as a verdict on the future of ESG. The conclusion, however, is a slightly tortured metaphor about collateralised debt obligations.

For those newer to the industry, the book provides a comprehensive and accessible history of responsible investment and many of the initiatives and standards it uses.

The more textbook-orientated sections will be broadly familiar for more experienced professionals, for whom the value of the book lies in Martindale’s assembly of a formidable collection of interviewees.

Martin Spolc, David Blood and Fiona Reynolds are among the luminaries contributing insights, and the book contains enough of Martindale’s own anecdotes to keep it interesting. For example, he reveals that on his last trip to China before leaving the PRI, he returned to his hotel to find it being searched by two men (for reasons unknown).

A fitting alternate title for the book would be “Martindale Unleashed”. While much of the text was written during his time at Cardano, some sections would make a corporate press officer wince. He holds back neither criticism nor praise in delivering a verdict on some of the initiatives and processes that underpin ESG.

For instance, having witnessed the Taskforce on Climate-related Financial Disclosures (TCFD) consultation process first-hand, he says it was “not thorough”. He also believes there was a “fairly clear idea” pre-consultation of what the taskforce’s recommendations would look like.

Turning to the Principles for Responsible Banking (PRB), he says: “Citi Group [sic] and Goldman Sachs are signatories, although I wonder whether their CEOs are aware of their membership.” This, he says, is a “reflection both of [the] PRB, but also the structure and culture at the banks”.

While critical of organisations and efforts he feels are lacking, Martindale is also complimentary in many places. The Institutional Investors Group on Climate Change (IIGCC) “punches above its weight”, while ShareAction is a “credible campaigner” that has “managed to retain the fine line of credibility with pension funds and asset managers”.

Given Martindale’s seven years at the PRI, there is naturally a detailed discussion of the network’s past, present and future – the acronym appears 268 times in the book.

The interview with former PRI CEO Fiona Reynolds features a somewhat critical verdict of the organisation at her departure. “I felt when I left,” she says, “PRI was becoming too slow in its decision-making and too bureaucratic, and it was starting to focus too much on itself as an organisation.

“You sit back as the CEO and say, ‘How have I created this big bureaucracy, I am of course responsible?’

“I don’t think covid helped, I also think in part it was growing pains – PRI was getting quite large at this stage. There are now 5,000 signatories. How many of them are responsible investment leaders? A small percentage. It does not mean that there’s not some great asset owners and managers, there are – just not enough of them.”