Asset managers urged to update reporting criteria amid ‘stewardship stampede’

Written by Adam Cadle

01/07/2024

The “unintentional stewardship stampede” by asset managers to show high levels of engagement activity with their investment holding in response to regulatory requirements, is at risk of driving down the quality of engagement reporting, WHEB Asset Management has warned.

While it is welcome that investment managers have intensified their engagement activities and are showcasing their related disclosures, WHEB’s latest Stewardship Report says asset managers should take a pragmatic and outcome-driven approach to engagement.

Earlier this month, WHEB’s impact report highlighted concerns that “an excessive focus on engagement activity metrics… does not adequately capture the depth or nuances of meaningful stewardship that will influence real-world outcomes.”

Racheal Monteiro, stewardship and climate analyst at WHEB Asset Management, said: “In recent years we have seen a huge shift in engagement. Rather than being considered a nice-to-have that is ancillary to asset management, instead it is being treated as part of the core client proposition.

“We are seeing company engagement evolve from basic data-gathering into interaction aimed at delivering real-world change. The quality and focus of reporting must also now step-up.

“Reporting the number of engagements is really just an inadequate proxy for the real purpose of engagement which is real-world change., This can be evidenced and reported on in terms of policies, procedures and ultimately performance that advances sustainability.”

Effective engagement for WHEB involves purposeful dialogue (bilateral or collaborative), a clear objective to address a material sustainability or governance risk/opportunity, and an identifiable outcome matched to the objective. It also differentiates between product engagement (aimed at increasing the positive impact associated with the target company’s products and services) and ESG engagement (seeking improvements on traditional operational sustainability, social responsibility and corporate governance issues).

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