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The Actuary The magazine of the Institute & Faculty of Actuaries

Investment industry urged to grasp “huge” stewardship opportunities

Stewardship still only accounts for a “small fraction” of the asset management industry’s activities, but redoubling efforts could present a “huge opportunity” for firms.

Industry advised to step up stewardship efforts ©iStock

That is according to a new paper from Willis Towers Watson (WLTW), which identifies five catalysts to accelerate stewardship progress within the investment community.

The firm said this is often seen as an “inconvenient responsibility” because it can involve time-consuming and uncomfortable conversations with company management.

“But stewardship is a critical part of corporate oversight and value creation within the industry,” WLTW senior director, Stephen Miles, said.

“As large index-tracking asset managers grow and become dominant shareholders of many companies, so grows their responsibility for high-quality stewardship.”

The paper describes current accountability as “soft” and “lacking urgency”, and calls on companies to set tangible, specific milestones that clearly measure success.

And voting rights are sometimes underutilised, according to the paper, with investors appearing hesitant to vote differently to company management recommendations.

Stewardship collaboration between managers is often limited too, and there is room for stronger leadership, perhaps through proactive standard setting for companies.

WLTW also pointed to a lack of resources, estimating that stewardship teams would grow more than 10 times larger if a quarter of one basis point of every asset invested was directed to stewardship.

It highlighted how six large asset managers, including UBS and BlackRock, are all taking action to improve stewardship, with the latter sending annual letters to company CEOs, for example.

By taking the recommended steps, WLTW said progress could be made in many areas, such as stewardship of climate risks, with initiatives currently lacking “sufficient urgency or depth”.

“We wanted to share this research widely to highlight the importance of stewardship as a key lever by which asset managers can create value for end savers," Miles continued. 

“There should be no place for halfhearted, reactive stewardship and there is a huge opportunity for those who really step up.” 

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