UK Asset Owner Roundtable publishes UK AO Stewardship Review 2023

Today sees the publication of the UK Asset Owner Stewardship Review 2023, the academic research instigated by the UK Asset Owner Roundtable and Faith Ward, in her role as Chair.

The UK Asset Owner Stewardship Review 2023: Understanding the Degree & Distribution of Asset Manager Voting Alignment, Andreas Hoepner et al. has already informed a collaborative dialogue and begun a forward-looking conversation between asset owners and asset managers.

Faith Ward will introduce webinars with Professor Andreas Hoepner to provide additional information and insights into the report, these will be held on Thursday 30 November, please register to attend one of these sessions.

The report provides evidence and insights into;

• Misalignment trends – Analyses, particularly the voting record analysis, show varying degrees of misalignment, with stronger discrepancies noted for US oil and gas issuers.
• Voting Rationales – The review indicates that only a select few asset managers publicly align their reasoning with asset owners. Some asset managers perceive voting and Environmental, Social, and Governance (ESG) engagement as mutually exclusive, raising concerns about potential access loss to management if misaligned.
• Distinct engagement process types across issuers – Issuer approaches range from persistent, long-term engagement with considerable progress to “quick fix” and “jumping the bandwagon” styles.

In further considering the misalignment, Hoepner and team recommended further research to explore this, but did also put forward five potential reasons behind this gap;

• Cultural Misalignment: Differences between UK based asset owners and non-UK based asset managers may contribute to misalignment. Future research will include asset owners from other jurisdictions.
• Resource Allocation Misunderstanding: A potential misunderstanding of the importance of stewardship and voting, leading to insufficient resource allocation, could be explored by analysing managers displaying resource-stretched behaviour.
• Fiduciary Duty Conceptualisation: Misunderstanding fiduciary duty, particularly in terms of risk management related to climate change, could be investigated by studying successful asset owner mandates.
• Stewardship Process Disagreement: Differing views over the relationship between voting and engagement were explored, considering the impact on misalignment and ESG engagement success.
• Financial Conflicts of Interest: Potential misalignment due to commercial relationships between asset managers, banks, and issuers could be studied, focusing on known conflicts of interest.

Faith Ward, Chief Responsible Investment Officer, Brunel Pension Partnership, said:

“This research provided the evidence required to initiate the proactive and constructive dialogue that was begun at the roundtable on 12 October. I am optimistic about the practical steps discussed, and the willingness of participants in the process to address the perceived gap verified by this report.”

Leanne Clements, Head of Responsible Investment for People’s Partnership, said of the findings;

“We have reached an impasse with respect to Net Zero stewardship and we are running out of time.  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 report embeds the discussions from the roundtable, held on 12 October, in which asset managers, asset owners and independent groups came together to further explore the reasons behind the misalignment, but also how the report’s findings could be translated into positive actions.

Next steps discussed included;

• Exploring the potential for extending this research to cover US asset owners
• 1-to-1 meetings between the UK Asset Owner Roundtable’s members and their investment managers to discuss those managers’ voting decisions at global oil-and-gas company AGMs
• A set of stewardship expectations for asset managers that will be developed by the UK Asset Owner Roundtable

Our thanks go out to the following organisations, who attended the round table on 12^th October or provided data for the research or, in many cases, both:

Aegon UK, Amundi, Aviva, Baillie Gifford, BlackRock, Border to Coast, Brunel Pension Partnership, Calvert, Cambridge Endowment, Chronos, Church of England Pension Fund, FCA,  FRC, Glass Lewis, HSBC Bank Pension Trust, IIGCC, Insightia, JP Morgan Asset Management, Lazard, LGIM, LGPS Central, Lothian, Merseyside Pension Fund, Nest, Oxfordshire County Council, Pension Protection Fund, People’s Partnership, Royal London Asset Management, Scottish Widdows, Schroders, Tesco Pensions Investment, TPI, UBS Asset Management, Universities Superannuation Scheme (USS)

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