The ways that asset managers approach investment stewardship are evolving alongside the rest of the industry, according to a report from Accenture Asset Management.
Stewardship refers to engagement with public companies to promote corporate governance practices that align with shareholder values and promote long-term value creation for minority and majority owners. According to the report, 80 percent of asset managers believe stewardship models provide opportunities to create value and deliver strong performance for shareholders.
But asset managers are experiencing challenges with their current strategies for shareholder engagement. Among the survey respondents, which consisted of executives at 50 asset managers and alternatives firms in North America, the majority said their top four challenges were data standardization, research and analysis, corporate interaction, and access to data.
“This is an area that hasn’t had the level of attention in the past that it’s starting to gain,” Ross Tremblay, senior manager at Accenture, told Institutional Investor. “As a result of that, it’s probably been an area that asset managers haven’t necessarily been able to build the infrastructure on yet, but it’s certainly an area that they’re looking to invest in now.”
Tremblay said he believes the rise in popularity of stewardship has to do with the climate of the industry. “Whereas 10 to 15 years ago, investors were focused on the traditional investing process, today, there are other criteria outside of purely performance that investors are looking for,” he said. “Something like investment stewardship is not only a way asset managers feel they can improve performance: It’s a way to appeal to what’s important to their investors and their brand.”
Of the survey respondents, 92 percent of respondents said they are looking to change their stewardship approach in the next five years. Key motivations for change included new opportunities for value generation (per 56 percent of respondents), increased demand for investor transparency and hands-on fiduciary duty (50 percent each), and a greater overall market focus on environmental, social, and governance considerations (48 percent).
As ESG practices become increasingly sewn into the fabric of the asset management industry, managers expect stewardship approaches to evolve as well. For instance, 82 percent of asset manager respondents said it is “imperative for principles to align across ESG, stewardship, proxy, and brand,” the report said.
In order to overcome data-driven challenges, 84 percent of survey respondents said their firms found value in using alternative data to support research and analysis in their investment stewardship models; 84 percent also said they believed AI and analytics could add value to stewardship functions.
“A big part of that is getting the right data to the asset managers to try to understand how the other portfolio companies are addressing key areas, and then try to identify the opportunities,” Tremblay said.
Over the course of 2020, asset management giant BlackRock participated in a proxy vote to move Exxon Mobile toward a more sustainable future and voted against the re-election of two Berkshire Hathaway directors, citing concerns related to the environment, II previouslyreported. This is all according to its annual stewardship report released in July. The firm also voted on two shareholder proposals related to climate change.
Tremblay said moves like this are a sign of stewardship moving into a more fundamental position in the investment process. “If it truly is a way to generate performance for their shareholders, stewardship could potentially be something that comes a lot closer to the investment decision-making process,” he said.
Historically, stewardship has been a relatively separate from the investment process, a sub-sector focused mostly on proxy voting, Tremblay said. But, if stewardship models evolve with the larger industry, asset managers may look to expand into processes like active stewardship and integrate shareholder engagement into the portfolio management end of the investment process.