Leanne Clements, Head of Responsible Investment at People’s Partnership, says asset owners must prioritise policy engagement to tackle systemic risks to returns.
In 2023, the World Economic Forum welcomed us to the age of the polycrisis – “a cluster of related global risks with compounding effects, such that the overall impact exceeds the sum of each part”.
Its annual global risk survey coined the term to reflect the “cascading and connected” crises then facing the world’s businesses and policymakers. Already struggling to overcome the COVID-19 pandemic and kick-start the net zero transition, they were also confronted by the impacts on energy and food prices of Russia’s invasion of Ukraine, as well as its destabilising effect on existing relationships and alliances.
Three years on, there appears a permanent shift in the paradigms we use to interpret the world, and mounting threats to the systems upon which economic activity depends. The range and scale of risks mean the term polycrisis resonates more than ever. Not least for asset owners seeking to understand the connections between these risks when making the investments that will help beneficiaries to build a long-term secure future.
“It provides the perfect lens by which we should be tackling the various sustainability risks we face and notably the ones that are systemic in nature,” says Leanne Clements, Head of Responsible Investment at People’s Partnership.
Clements believes the challenges of this new environment demand a new approach by universal owners, covering their own organisational structures, their investment beliefs and frameworks, and the tools and service providers on which implementation depends.
“En masse, I think we lack the analytical tools necessary to do this. They are very siloed in terms of how they evaluate risks. And if we don’t address this, we’re leaving risks off the table that we’re not addressing,” she says.
“One of the things that investors can do is to create incentivisation structures in the mandates they have with ESG data and research providers and other relevant actors in the investment chain to drive the necessary innovation in this space.”
People’s Partnership is the UK’s largest independent master trust with around £40 billion (US$53.94 billion) in assets under management, serving seven million members across 100,000 employer organisations. Clements is a member of the senior investment team at People’s Investment Limited, the official advisor to the trustee of the People’s Pension. Her team owns People’s Partnership’s responsible investment policy and advises the wider investment team, providing an opinion on any strategic options presented to the trustee.
Large strides
While People’s Partnership took two strides in this direction in Q1 2025, Clements predicts larger ones are necessary in the evolution toward macro or systemic stewardship, to effectively and efficiently address the risks to long-term returns posed by systemic breakdown and shifting paradigms.
“With the rise of system stewardship, the expectations in this area are becoming much more complex. In turn, this demands a re-evaluation of resourcing, not only from a headcount perspective, but also in terms of skills, market coverage, IT and so on,” she says.
Last February, People’s Partnership announced that it was switching US$28 billion from a pooled vehicle run by global index fund provider State Street Global Advisors to a segregated mandates with Amundi and Invesco. Alignment of asset management partners with its responsible investment policy was a critical driver of the decision, with clearly drafted investment management agreements (IMAs) identified as the mechanism underpinning these new relationships.
To provide a template, TPP leveraged the model mandate developed by the International Corporate Governance Network (ICGN) and updated in 2022 in collaboration with the Global Investors for Sustainable Development (GISD) Alliance. The guidance includes draft contract clauses aimed at use of stewardship to align portfolios with sustainable development.
“It cannot replace a robust due diligence and monitoring programme, but codifying your expectations into an IMA can give it extra teeth,” says Clements, adding that People’s Partnership has specified periodic reporting by managers on their progress closing expectation gaps flagged during initial due diligence.
“It’s the point in the relationship where you arguably have the most influence,” she notes.
People’s Partnership has also included minimum requirements for stewardship resourcing in its new listed markets mandates, partly in recognition of the challenges of systemic approaches. However, stewardship resourcing is a long-running issue, underlined by a research project undertaken by the Thinking Ahead Institute and the UK Principles for Responsible Investment.
Clements admits stewardship resourcing remains “more of an art than a science” at present, requiring a degree of flexibility, while holding managers firmly to account.
“Knowing the exact number of people needed in key markets is tricky. But if certain key markets have no staff at all, that might be a red flag because local presence does matter,” she says.
No longer fit for purpose
In parallel with these new mandates, People’s Partnership was one of three UK-based pension providers that drafted a set of principles outlining the expectations of asset owners on climate stewardship. The statement – outlining to asset managers ‘what good looks like’ when factoring climate into engagement and voting strategies – has now been endorsed by 35 asset owners worth US$2 trillion.
The first principle asserts that “industry/market and public policy engagement should be core to the climate stewardship proposition across asset classes”. This is a significant shift given the historic focus of active ownership on corporate engagement, as reflected in the meetings and votes totted up in stewardship reports.
“This is no longer fit for purpose if used in isolation to demonstrate impact,” says Clements. “Ultimately, to address the sustainability challenges that we face as investors, we need to see change from a lot of companies. But we have limited stewardship resource, so we want to make sure that we’re allocating resources in the most effective areas to deliver maximum impact.”
To date, investors have targeted the most carbon-intensive corporates in their portfolios, both through bilateral engagement and collaborative initiatives such as Climate Action 100+. They have also combined to call for accelerated climate policy action by governments, for example via campaigns coordinated by of the Investor Agenda.
In the age of the polycrisis – with policy volatility and systemic risks beyond the climate realm – Clements argues that the balance needs to be tipped further. This has implications for asset owners’ oversight of their manager relationships as well as their own resources and skill sets.
“What does effective policy and industry engagement on systemic risk actually look like? Ultimately, to address systemic risks requires systemic intervention,” she says.
This is a long-term change of course, built on individual and collective actions by asset owners. “First, asset owners as owners of capital should hold their fund managers to account for their policy engagement activities and set clear expectations on this in their monitoring programmes,” says Clements.
Missed opportunities
Investment consultants such as UK-based LCP have provided guidance on oversight strategies for asset owners, as well as setting out clear expectations to asset managers on policy-level stewardship when conducting selection processes on behalf of clients.
In its latest responsible investment manager survey, the firm said a narrow focus on regulation and disclosures in managers’ policy advocacy activities meant “opportunities for real world impact through policy engagement are being missed”.
“There are no fast rules for this, but your instinct should tell you that if a fund manager is spending over 90% of their time on company engagement – versus industry and or policy engagement on addressing systemic issues like climate – that’s a problem that needs unpacking,” says Clements.
“One needs to be pragmatic as to what can be achieved over the course of the mandate. It may take a while for an entire industry to shift its thinking around this. At a base level, this is an efficiency argument,” she adds.
The US presents a case study for the importance and difficulty of policy-level engagement on climate change in particular.
Since the return of Donald Trump to the White House, the federal state’s role in limiting climate change and reducing greenhouse gas emissions has been rapidly dismantled – with the recent repeal of the Endangerment Finding continuing the work of last year’s budget, which repealed incentives for clean energy investment. These measures have been carried out alongside a parallel campaign by the Securities and Exchange Commission to limit the influence of the investors on the management decisions of listed firms.
“An appropriate balance needs to be struck so that you’re neither on the one hand overreacting – as there are still guardrails in place to protect shareholder rights – nor on the other hand underreacting to potential future erosion to shareholder rights,” says Clements.
This means setting expectations on climate stewardship that stretch asset managers, within the context of their operating environment.
“We as asset owners need to stand firm with asset managers now more than ever on how they engage and vote with companies and how they engage with industry groups and regulators in the US,” she says.
“Our fund managers are at the coalface of this more so than we are. And so I feel that the primary lever to address this is through our own monitoring programme with them.”
Money talks
Alongside this closer scrutiny of managers should come an increased focus on the most effective forms of collective policy engagement. According to Clements, these include the Collaborative Sovereign Engagement on Climate Change, launched by the UN Principles for Responsible Investment in 2022 to support dialogue with governments to mitigate climate change in line with investors’ fiduciary duty. At present, 42 investors with US$17 trillion are actively engaging with sovereign entities in Australia, Canada and Japan.
“At the end of the day, money talks and can bring the right stakeholders into the room,” says Clements, citing the Global Investor Commission on Mining 2030 as an example of asset owners and managers developing a coordinated and constructive approach to an industry currently contributing to systemic risks, but also a potential driver of long-term returns and the net zero transition.
While initiatives such as Mining 2030 have been recognised at the government level – including a meeting with Brazil’s President Lula ahead of COP30 – the skills and governance required for engagement with policymakers are not necessarily embedded currently in all asset owner organisations.
Clements sees a need for asset owners to undertake an internal assessment to determine whether they have the necessary skills to drive effective policy engagement. “Just because you’re a responsible investment expert doesn’t necessarily mean you’re also a lobbying expert. Do you have a policy and public affairs team? And if so, are you leveraging those relationships to maximum effect?” she posits.
But traditional forms of stewardship should be updated and improved, rather than abandoned, says Clements. The asset owner statement also proposes that asset managers root their prioritisation framework for company engagement “in a robust theory of change that delivers maximum impact”. In short, managers should direct their resources and efforts in line with clear strategic objectives.
“Are they spending a disproportionate amount of time on the supply side and not enough on the demand side? There is a theory of change that says if you solve demand, supply will follow. For transition plans, are they diluting their signal to companies by referencing too many transition plan elements in their engagement, rather than prioritising critical elements like capex or lobbying?” she posits.
Clements and colleagues are surveying signatories to the statement in order to understand the practical impact over its first 12 months on dialogue with managers on climate stewardship.
In keeping with her focus on optimising available resources, she is keen to improve the efficient and effectiveness of information flows around stewardship practices. This should be an area of common ground across asset owners and managers by reducing the burden of customised information requests which inevitably distract from the achieving shared objectives.
The transparency of UK-based managers’ proxy voting records has already been improved with the development of a standardised vote reporting template. Clements is keen to see the development of platforms that enable action, for example supporting holistic milestone tracking and voting escalation, as well as codifying company follow-ups to determine impact of successful engagements.
“The ideal scenario is to have a software platform of voting and engagement data that asset owners can use to produce bespoke reports. In that scenario, the asset owner client gets exactly the reporting they want, but it’s also reducing the burden on the asset manager side.”
