Stewardship, according to the Merriam-Webster online dictionary, “first appeared in English during the Middle Ages, it functioned as a job description, denoting the office of a steward, or manager of a large household”.
“Over the centuries, its range of reference spread to the oversight of law courts, employee unions, college dining halls, Masonic lodges, and many other organizations,” the dictionary notes.
And more recently the term has leaked into the investment mainstream, joining the related environmental, social and governance (ESG) acronym as a must-have accessory for all respectable asset owners and fund managers.
During the last couple of years several jurisdictions, including Australia and NZ, have adopted stewardship codes to formalise and standardise what have to date been idiosyncratic practices.
In its first survey of the state of stewardship in the local industries published this month, the Responsible Investment Association of Australasia (RIIA) found more than half of respondents have adopted “one or more” codes.
The poll of some 70-odd fund managers and asset owners across Australia and NZ reveals some code loyalty trends are emerging along industry sector lines.
“Many investors have adopted the UK Stewardship Code, while the Australian Asset Owner Stewardship Code is common among Australian super funds, and the ICGN Global Stewardship Principles among investment managers,” the RIAA report says.
“Still, 49% of investors surveyed have not adopted a code or standard to guide their stewardship practices despite practicing stewardship.
“… none of the trusts, foundations or banks included in the survey adhere to stewardship guidelines….”
RIIA conducted the survey before the release of the NZ stewardship code this October, which attracted seven signatories at launch.
Despite the rapid rise of codes and industry chatter, turning stewardship words into real-life action remains problematic, the report says.
“More than half of the interviewees identify structural barriers and industry limitations, lack of resources, capacity, skills and knowledge gaps, and accountability and reputation as the biggest barriers to effective practice,” the study says. “Investors describe differences in investors’ ability to influence real-world outcomes through stewardship and lack of incentives.”
The RIAA survey also uncovered some misalignment between the “goals and purposes” of stewardship codes and investor practices.
“While improved ESG disclosure and outcomes and long-term value creation are recognised by practitioners, as well as in investor policies and stewardship codes, practitioners and investor policies place a greater emphasis on using stewardship to inform financial decision-making such as improved performance and risk management,” the report says. “The goals of financial returns and performance, and risk management do not feature as prominently in modern stewardship codes and are replaced by support for a sustainable overall economy.”
Nonetheless, the RIAA ‘Engage, Advocate, Collaborate: Unpacking Stewardship in Australasia in 2022’ survey – produced with consultancy firm, KPMG – found more than 80 per cent of respondents have worked with other investors to “achieve better ESG outcomes” while 71 per cent have joined wider industry efforts to engage on public policy matters.
Estelle Parker, RIAA executive manager programs, said in a release that the results show investors “are recognising that many ESG issues that are a material risk to their portfolios are not going to be solved by individual engagements with investee companies alone”.
“Issues like climate change and cultural heritage protection are systemic in nature, and investors are increasingly working to tackle these risks using a broader range of tools,” Parker said.
However, she said while the general trend to ESG adoption as part of a “fiduciary duty” was encouraging, “many have a long way to go to meet best-practice standards”.
“It leaves us wanting for greater adoption of stewardship codes, better monitoring of stewardship practices, and more transparent reporting on both stewardship activities and their outcomes,” Parker said.