‘Urgent action’ needed to address net-zero stewardship misalignment

Written by Jack Gray

21/11/2023

The UK Asset Owner Roundtable has published its findings in a new report and called for urgent action from the entire stewardship chain to address the ‘misalignment issue’ identified in the review.

In October, the UK Asset Owner Roundtable held its first event to discuss concerns about the perceived misalignment between asset owners’ long-term interests and how investment managers are exercising proxy voting.

It found that there were varying degrees of misalignment, especially in the voting record analysis, with wider discrepancies highlighted for US oil and gas issuers.

Furthermore, the review suggested that only a few asset managers publicly align their reasoning with asset owners, noting that some asset managers perceive voting and ESG engagement as mutually exclusive.

This raised concerns about potential access loss to management if misaligned.

Issuer approaches were found to range from persistent, long-term engagement with ‘considerable’ progress, to ‘quick fix’ and ‘jumping on the bandwagon’ approaches.

The UK Asset Owner Roundtable recommended further research to continue considering the misalignment and put forward five potential reasons behind the gap: Cultural misalignment; resource allocation misunderstanding; fiduciary duty conceptualisation; stewardship process disagreement; and financial conflicts of interest.

“We have reached an impasse with respect to net-zero stewardship and we are running out of time,” said People’s Partnership head of responsible investment, Leanne Clements.

“Urgent action is needed from the entire stewardship chain to address the misalignment issue identified in this research.

“A complete dismantling of failed status quo approaches to stewardship is needed by the fund management industry, with voting escalation not seen as a ‘last resort’ approach used on an exceptions basis, but rather a powerful signal to companies of what investors expect of them.

“A continued lack of industry action will seriously undermine the financial sector’s ability to deliver not only its own net-zero commitments, but more importantly, better outcomes for savers.”

The group’s potential next steps include exploring the extension of the research to cover US asset owners, one-on-one meetings between its members and their investment managers to discuss voting decisions at oil and gas company AGMs, and developing a set of stewardship expectations for asset managers.

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