Benchmark Study Takes Stewardship Data to Task
Industry experts stress the importance of heightened engagement efforts and smarter allocation of resources.
The Thinking Ahead Institute (TAI) has flagged the lack of data for stewardship as a major impediment to the effectiveness of engagement efforts in recently released research.
In a research paper commissioned by the UN-supported Principles for Responsible Investment (PRI), the institute assessed the level of resources that institutional investors should be prepared to dedicate to stewardship within their organisations.
The TAI’s research comprised a report on the allocation of stewardship resources and a new framework to assess resources. The main conclusions were that a more structured approach to the measurement of stewardship resources is required, and that such resources would need to double over time at industry level.
Improved data was one of three factors identified as potential catalysts to effect that change. However, challenges such as limited data availability, inconsistency, and the absence of standardised reporting frameworks still stand in the way.
“If you look at stewardship codes across the world, they touch on resources as being a key element, but without explicitly giving out guidance on how organisations can report and which resources are required,” Jessica Gao, Director of Research at the TAI, told ESG Investor. “We always expected to have data problems, but getting data in a consistent format is much harder than anticipated.”
While in some regions regulatory guidance around stewardship efforts is clear, in many others it remains lacking.
“There is a total absence of guidance,” agreed Teni Ekundare, Engagement Manager at Columbia Threadneedle Investments, and a former member of the Stewardship Resourcing Technical Working Group, which helped understand existing stewardship resourcing practices and inform activities.
Fellow group member Hanna Roberts, Executive Director of Stewardship Services at Sustainalytics, noted there remained some way to go until stewardship resource data could be objectively measured.
“Over the last few years, the industry has improved its focus on stewardship activities and there is a trend of increased demands and needs – but currently, ambitions are not paired with sufficient resources,” she added. “The resourcing gap is not only about the quantity allocated to stewardship activities, but also to assessing skills – alongside challenges in reporting, underlying data, and collaboration.”
Initially announced in December 2022, the PRI and TAI set out to create a global stewardship standard, with the project involving an institutional benchmarking study to assist organisations in better understanding current stewardship practices and resourcing requirements. Last May, the organisations issued a ten-question Global Stewardship Resourcing Survey (GSRS) to institutional investors as part of efforts to develop a methodology for benchmarking stewardship resourcing.
Enhancing engagement, revamping resourcing
Two other factors were highlighted by the TAI as potential positive catalysts to double stewardship resources. One was for stewardship to become more joined-up through industry working groups and increased focus on addressing systemic risk, and the other was more productive asset-owner-to-manager engagement.
“We’re hoping the framework can be used as a tool to facilitate better conversations between them,” said Gao. “We often talk about engagement with investee companies, but that between the asset owner and manager can sometimes be overlooked.”
According to Will Martindale, Co-founder and Managing Director of Canbury Insights, less time and resources tend to be spent on engaging with companies, stakeholders and policymakers to achieve change, than on reporting and voting.
“High-conviction engagement requires resourcing, and while some asset owners and asset managers do this well – as an industry, stewardship is under-resourced, which is a tragedy of the commons,” said Martindale.
Panellists speaking at ESG Investor’s 2024 summit last month highlighted resourcing gaps in stewardship teams, noting that the global investment industry continued to be under-resourced and issuing calls for upskilling and collaborating to bridge the gap.
Conducted between July and September 2023 among 69 asset owners and managers, the TAI’s GSRS showed allocations of approximately 7% of total investment resources to stewardship. The survey estimated the industry average around or below 5%, suggesting efforts needed to double over the coming years.
“Many investment management firms have only recently started to build their stewardship teams, so an average of 7% of resources might be higher than I expected,” said Leon Kamhi, Head of Responsibility & EOS at Federated Hermes. “The quality of resources is key and their understanding of how business and finance work is going to enhance the value of the companies being engaged.”
Paul Lee, Head of Stewardship and Sustainable Investment Strategy at Redington, agreed that investors currently do not have sufficient resources to deliver stewardship as effectively as they could, but suggested that smarter allocation could be a more realistic way to bolster those efforts.
“Not enough investors seem to be strategic about where they choose to expend their resources – and, importantly, where they choose to limit them,” he added. “The industry as a whole could be much more efficient and reduce the current level of duplicated efforts [if this was done differently].”
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