Corporate governance has been a topic of interest for the buy-side long before ESG was even a twinkle in some asset management strategist’s eye. The G (governance) in ESG has never been out of fashion, but the way in which governance processes are shaped and undertaken is evolving.
How and where asset managers engage with asset owners to gather their feedback about voting preferences has changed over the years. Much has rested on the shoulders of the investment stewardship teams in this regard and these teams have an increasing workload to manage as the industry focus on governance increases. Moreover, given the increased propensity for active shareholder engagement on topics related to ESG and the advent of pass-through voting for more asset types, including exchange traded funds (ETFs), the investor voice is getting considerably louder.
At the risk of sounding like Spiderman’s Uncle Ben (no, not the rice guy), we have to acknowledge that with great power comes great responsibility. Making sure investors understand what they’re voting on and the impact that it may have on their direct investment portfolio and any underlying investments in the case of index funds or ETFs, is increasingly important. Capturing investor preferences and changing sentiments is dependent on the hard work of investment stewardship teams. Proxy season (which is currently underway in numerous countries) is therefore a bit of a nightmare for these teams.
Technology certainly can go some way to alleviating some challenges, for example capturing the vote preferences of institutional and retail shareholders via apps or portals, but it doesn’t solve every challenge. Decision-making related to governance issues has never been under more scrutiny and it is only likely to increase further as more ESG legislation comes into play across the globe. How, why and where you engage with investors needs to be defensible, especially if you look at incoming regulation such as the UK Consumer Duty and its focus on the retail investor community.
Continued investor education is therefore of paramount importance. As I’ve previously noted, the subject of ESG is often politically polarising, so the manner in which information is communicated will also likely be under great scrutiny from those outside of the industry as well as from within.
There’s a reason why investment stewardships at some firms have doubled in size over the last couple of years. Your friendly neighbourhood stewardship team member has a lot resting on their shoulders.
The investor voice
The investor voice is getting considerably louder when it comes to corporate governance, but it need to be suitably backed with ample information so investors understand what they are voting on, the impacts and the possible scrutiny that is occurring across the globe, writes Virginie O’Shea, founder, Firebrand Research.