Anuj A. Shah, Partner, Head of US & UK, KKS Advisors
Bérénice Lasfargues, ESG Specialist, BNP Paribas Asset Management
Bruce Duguid, Director, Head of Stewardship, EOS, Federated Hermes
Rosalie Vendette, Sustainable Finance Expert
Many people in the market are now using the terms “stewardship” and “engagement” interchangeably, which begs the question: what does “stewardship” mean exactly?
According to leading researchers and practitioners, stewardship goes far beyond proxy voting and engagement to include factors such as collaboration, education, and more.
In Wednesday’s RIA conference session, “The Rise of Investor Stewardship: A Global Perspective,” Sustainable Finance Expert Rosalie Vendette spoke with Bérénice Lasfargues, ESG Specialist at BNP Paribas Asset Management, Bruce Duguid, Director of Stewardship at Federated Hermes’s EOS, and Anuj A. Shah, Partner and Head of US and UK at KKS Advisors, to share their insights on the current and future role of stewardship.
When KKS Advisors started their own research on stewardship, there was no set definition. Different firms and organizations were describing stewardship in unique ways.
“Broadly speaking, stewardship reflects the role of investors as stewards of the assets entrusted to them by their clients and it’s the responsibility of investment professionals to carefully protect and enhance the value of those assets,” Shah explained.
“It embodies the notion that investors are influential market players and have the power to shape markets. Within ESG, specifically, stewardship is a core concept and it’s deeply linked to fiduciary duty and inherently encompasses the entirety of all of the definitions of stewardship and fiduciary duty.
Shah broke down the key components of stewardship as:
Slides presented by Anuj A. Shah
“Stewardship is linked to greater financial performance and improved ESG performance,” he added.
It’s shown to have many benefits, such as reducing exposure to downside risk, creating an informational advantage, leading to higher firm market value, lowering stock price volatility, and positively affecting sales growth and returns.
Slide presented by Anuj A. Shah
Lasfargues added to the conversation by sharing BNP Paribas Asset Management’s approach to stewardship, which they group into three broad categories: voting, corporate engagement and public advocacy.
Slide presented by Bérénice Lasfargues
Stewardship and active ownership are key to helping the asset manager gather data to gain insight into company performance, as well as educate issuers on ESG issues, drive disclosure and improve performance on a range of issues, Lasfargues said. Stewardship also plays an important role in helping to contribute to policies and regulations.
“One distinction that we like to make is a distinction between investors that are future takers or future makers. And as a future maker, it is our belief that we’ll protect future performance by using our influence with companies to advocate for a low carbon economy.”
Shareholder resolutions on the rise
Coming off the heels of a climate win for ExxonMobil’s shareholder activists, most participants at the conference felt strongly that there will be more shareholder resolutions in the future.
Lasfargues agreed that the market might be going in that direction, but noted that “ideally a good dialogue would yield the same outcome.”
“A lot of good things happen behind the scenes without us having to file a shareholder proposal,” she added. “It’s somewhat of an escalation strategy when you feel the issuer is not being responsible or not paying sufficient attention to the issue or you feel voting down the board will not be enough.”
Duguid also predicted that engagement will escalate in the future. “We’re probably going to see more votes on transition plans, and more proxy access and more shareholder resolutions,” he said.
“So many investors are committing either publicly or privately to a net zero investment strategy. To do that and not be forced into mass divestment, it really does mean changing the nature of the company’s underlying portfolio. And that’s driven by asset owners. I think that’s going to carry on and make stewardship extremely interesting over this decade.”