Prevailing practices must respond to more rigorous scrutiny from asset owners and their beneficiaries, if stewardship is to secure the right and resources to tackle systemic risks.
Asset owners are demonstrating more clearly than ever the value they place on stewardship. Driven largely by a growing awareness of the impact of ESG risks on portfolio returns, some asset owners are bulking up in-house teams, while others are working harder to clarify their expectations – turfing out asset managers that fail to come up to scratch.
At a recent roundtable, co-hosted by fintech startup Compass Insights and Sustainable Investor, a group of UK-based experts underlined their determination to realise a tangible return on their increasing and ongoing investments in stewardship.
“As a pension fund, our time horizon is 50+ years into the future,” explained Sally Cheung, Senior Responsible Investment Analyst at the West Midlands Pension Fund (WMPF). “We’re investing based on this long-term horizon. We want to partner with managers that share this long-term view to drive value for our investments, employers and members.”
Recent survey data indicates asset owners’ growing expectations for transparency and oversight in order to improve outcomes. Three in four asset owners told proxy advice provider Glass Lewis they wanted to track stewardship carried out by external managers – citing the collection and normalisation of data from managers as the biggest barrier, alongside ‘investment mandate agreements, power in relationship and costs’.
Almost all asset owners and managers are using stewardship reports to highlight how they have ‘shifted the dial’ on sustainability risks and impacts. But stewardship outcomes for end-investors can be hard to quantify with precision, partly due to challenges recognising the contribution of individual institutions to common shareholder priorities.
The multi-year time horizons of many engagement efforts can also obscure cause and effect. With asset owners seeking to deliver sustainable returns through long-term relationships – across both asset managers and portfolio companies – patience can be a strength and a weakness.
As a result, the complexities and nuances of stewardship are rarely captured in full by current disclosure practices. Importantly, they can allow underperformance to fly under the radar, with activity masquerading as influence.
Can stewardship become more efficient, transparent and results-driven? It may not have a choice. If asset owners believe it can address the systemic risks that are dragging down market beta, they will need to achieve greater buy-in on stewardship resourcing from trustees and members.
A diverse discipline
A foundational challenge for asset owners stems from the fact that stewardship – broadly defined as the use of owner influence to safeguard and support asset valuations over the long term – has many channels, tactics and outcomes.
“Engagement can be important because of where it doesn’t lead,” observed Kalina Lazarova, Corporate Governance and Voting Lead at Standard Life. “The insight could be that progress hasn’t happened, which could inform an investment decision for the asset managers.”
The need to invest over time was recognised around the table as inherent in the nature of stewardship of assets on behalf of long-term investors.
“Effective engagement is a lot about relationship building. You can spend a lot of time not achieving or asking for anything, but you’re building that relationship,” said Darren Roberts, Senior Sustainable Investment Manager at Aviva.
In this diverse discipline, asset owners seek to exercise portfolio oversight directly or in partnership, via engagement or voting, prioritising one key theme – such as climate – or several, with specific outcomes in view, or less so.
In almost all cases, the impetus stems from the identification of financially material risks within a diversified portfolio, with investee companies the initial – but far from the only – focus for engagement.
In our roundtable, which took place in London in mid-March, stewardship experts focused on three areas of improvement with the potential to deliver a difference: objective-setting and reporting; resourcing and relationships with asset managers; and the collective response to systemic risks.
‘Up-front’ investment
For Owen Thorne, Investment Manager – Monitoring & Responsible Investment, Merseyside Pension Fund, turning risks into objectives and actions is a crucial and collaborative first step.
“Because they are accountable to members, sponsors and even the wider public, that allows asset owners to express long-term sustainability goals in non-financial terms, then work with asset managers and others within the financial system to calibrate those within a portfolio. This means asset owners can prioritise system-level goals prior to defining them within the context of a portfolio or a particular asset,” he said.
However it is achieved, the setting of objectives is a critical upfront task that requires close attention, according to Tim Manuel, Head of Responsible Investment at the Border to Coast Pensions Partnership.
“It’s easier to evidence progress on outcomes if your objectives are clear at the outset, ie the points of difference that you’re engaging on; the milestones are you expecting; the escalation framework you’re using; and the end-point you’re aiming for.”
Responses to the recent Glass Lewis survey suggest that rigour, transparency and integration are high on the agenda for asset owners and managers.
When asked to select key areas for increasing stewardship quality, respondents cited improving the feedback loop to investment decision-making (44%), strengthening engagement prioritisation and target research (44%), and utilising a credible escalation strategy (41%).
While all roundtable participants agreed there is scope for greater structure in stewardship activity, there was also a recognition of the challenges of setting firm deadlines for results.
“Change can require periodic dialogue, in which the asset owner is presenting its case. Sometimes you can still see the trajectory of progress, even though it may take time to materialise,” said Vaishnavi Ravishankar, Head of Stewardship at Brunel Pension Partnership.
While structure is valuable, templates have limits. For many, the current practice of demonstrating stewardship effort and activity through numbers of votes and meetings can be reductive, often failing to reflect the reality.
“It is important for asset managers distinguish between meetings for ‘insight gathering’ and meetings ‘for change’ when reporting to us to enhance transparency across stewardship activities and to reinforce our focus on outcomes over volume,” noted Standard Life’s Lazarova.
Certain current practices are living on borrowed time. In a recent white paper, Compass Insights highlighted common reporting habits that thwart asset owner efforts to understand how managers have sought to leverage their influence. These include the reporting of redundant interactions or ‘easy wins’ that have little impact on fiduciary objectives, or ‘successes’ based on vague assurances, with little supporting evidence.
Our roundtable participants’ analysis of three anonymised case studies highlighted some of the current pitfalls, including an absence of escalation in the event of pushback from issuers.
“The reader has to work quite hard to join the dots,” noted Roberts at Aviva. “It’s quite hard to work out where progress has been made on each of the objectives. Another common theme is the lack of a clear link between voting decisions and engagement objectives.”
Roundtable participants also noted that case studies do not always reflect wider context, failing to explain how the activity described aligns with the strategic objectives set out by the asset owner.
“It takes time for asset owners to identify high quality stewardship. You need to distil substance from the engagement narrative. Asset owners need better tools to identify genuine, effective stewardship and really discern that ‘engagement polishing’,” said Gustave Loriot-Boserup, Founder of Compass Insights.
Resources and relationships
The diverse channels available for the execution of stewardship activity gives the asset owner valuable choice. But it can thwart efforts to establish best practice in the allocation of resource and the leveraging of relationships in pursuit of effective stewardship.
Asset managers often act as extensions of the asset owner’s in-house stewardship activity, taking responsibility for engaging or voting in line with their client’s expressed priorities. But when portfolio holdings run into thousands and engagements last several years, it requires much time and effort for asset owners to determine whether managers are devoting enough resource and attention to deliver on expectations.
The picture is further blurred by division of responsibilities not only between asset owner and manager, but also across proxy voting firms, third-party stewardship providers, and collaborative initiatives.
“If asset managers want to make their managers responsible for implementation of stewardship, there’s a question of how they’re executing that strategy,” said Ravishankar at Brunel.
“It might translate into tackling specific idiosyncratic risks for a company or a system-level risk requiring policy change. The lever can be decided by the asset manager, but there need to be specific objectives and milestones to enable asset owners to understand where progress has been made.”
While outcomes and timelines vary, asset owners can incorporate a range indicators into their due diligence to assess whether asset managers have the wherewithal to deliver on stewardship. Distinctions between offerings have become more apparent, with the development of voting choice and stewardship options – notably by US managers – as well as regulatory changes.
Choices and consequences
Managers’ choices increasingly have consequences. In Q4 2025, New York City’s outgoing Comptroller recommended three of its public pension funds switch from a BlackRock index equity fund, citing differences in its climate stewardship capabilities from alternative providers.
In terms of resourcing, around 5% of total investment management costs is allocated to stewardship activity, covering internal resources, third party providers, and memberships, according to a 2024 survey of asset owners and managers conducted by the Thinking Ahead Institute (TAI).
As well as recommending that organisations typically double this spend, the TAI also piloted a Stewardship Resources Assessment Framework, developed to help asset owners better understand their own practices, but also to enable more accurate and regular monitoring and comparison of managers’ resources.
The Glass Lewis study showed little appetite for increasing stewardship headcount, but its analysis suggested growing coordination with investment teams, as well as increased integration across engagement and voting.
“We talk to our managers to understand how they’re resourced, including how they carry out engagement with regulators and policymakers as part of the broader discussion,” explained Lazarova at Standard Life.
Although roundtable participants were firm in their wish for asset managers to demonstrate better alignment with their stewardship objectives, they underlined the value of investing in relationships over the long term.
Daniel Jarman, Stewardship Manager at the Pension Protection Fund (PPF), concluded, “Getting good stewardship outcomes isn’t anywhere near as easy if you don’t have good relationships.”
They also acknowledged the need for asset owners to consider their own processes and priorities in pursuit of stronger stewardship outcomes.
“Generally, there can be a reluctance across the market to pay for stewardship, which remains a significant barrier. The value of stewardship is not always articulated clearly. If an asset owner is not willing to commit resources to it, it raises questions about the priority they place on stewardship,” said Manuel at Border to Coast.
High expectations; mounting risks
If asset owners are not yet prepared to spend big on stewardship, they still have high expectations for its ability deliver positive outcomes to beneficiaries.
At a time of mounting and connected risks across portfolios, asset owners’ pursuit of efficiency and impact has led to an increase in collaborative stewardship initiatives – the better to pool resources – and the rise of systemic stewardship.
Broadly, this reflects the conviction that biggest risks to diversified portfolios come from the degradation of market beta, caused by a weakening of the social, environmental and financial systems on which economic activity depends. To effect positive systemic change, engagement with governments and regulators through public policy advocacy is often seen as a more effective response than traditional corporate-facing stewardship.
At the roundtable, the efficiency case for systemic stewardship was made by David Russell, Chair of the Transition Pathway Initiative (TPI), and former Head of Responsible Investment at Universities Superannuation Scheme.
“Engagement with individual companies is essential. But if you’re an asset owner, it’s just not possible to engage with all the companies in your portfolios. If you identify a risk – like poor corporate governance in the emerging market country – rather than engaging with individual companies, why not engage with asset managers, regulators and policymakers to improve standards of governance?” he posited. “It’s a much more efficient way of managing risks and achieving real-world outcomes.”
Asset owners have frequently taken a collaborative approach to addressing systemic risks with widespread impacts across portfolios. Such initiatives can focus on engagement with actors in the public sector, as executed by the Investor Policy Dialogue on Deforestation. But they can also be directed at corporate interlocutors, as with Climate Action 100+, in which a group of large asset managers and owners have adopted a multi-year programme of engagement with carbon-intensive corporates, to improve disclosures and action on climate risks.
In both cases, the collaborative approach means that participating investors deliver a common message in common terms, benefiting from authority and clarity.
Russell cited the Asian Corporate Governance Association as an example of an organisation supporting industry-wide efforts to address a systemic risk, providing knowledge that asset owners and asset managers could coalesce around and use to engage with policymakers. “For asset owners, the key is how you use your external relationships and expertise about different markets and issues to have the most effect,” he observed.
PPF’s Jarman agreed that recent corporate governance changes in Japan illustrated the benefits of engaging with the government and regulators, and developing best practice in the market. “We’re now seeing the fruits of that work and seeing similar progress in Korea. Collaborative efforts have been played down over the past 18 months or so, but they can be an effective in helping asset owners and managers to address systemic risks,” he said.
While some roundtable participants did not see themselves as viewing stewardship priorities through a systemic lens, they did recognise the case for tackling certain risks via a range of channels and tactics to strengthen stewardship effectiveness.
“Bottom-up company engagement helps the exploration of systemic risks and identifies where innovations can come from,” said WMPF’s Cheung.
Despite the arguments in favour of increased policy-level engagement to address systemic risks, it is a nascent field, not yet receiving the investment in skills and resources to realise its potential. To this end, TPI’s Russell suggested changes would be needed beyond stewardship professionals.
“Sending the head of responsible investment to do policy engagement is not going to have the same impact as sending the chair of the trustee board or CEO. Companies have better access and more resource to throw at this. Getting the right people at the right time with the right information is difficult. The asset owner community needs to learn how to do system-wide engagement better, because it can be the most effective channel.”
Responsibilities to members
The practice of stewardship is responding to an evolving investment landscape, with asset owners recognising that progress is rarely linear, either in honing best practice or achieving stated engagement objectives.
Manuel describes Border to Coast’s stewardship function as providing oversight and subject matter expertise to support the delivery of stewardship through multiple channels, largely the investment team.
“Transparency around progress is important. Stewardship means having an honest conversation on the direction of travel over the long term. One stewardship manager describes it as periods of acceleration and deceleration,” he noted.
The pressures to demonstrate meaningful outcomes from investment in stewardship are manifold, from greater regulatory scrutiny to heightened market volatility to rising systemic risks to returns. Ultimately, it is members and beneficiaries to whom asset owners are responsible. Their support – based on evidence – will secure the resources needed to further strengthen stewardship and protect portfolios.
According to WMPF’s Cheung, members are typically supportive, but require information to understand the actions being taken on their behalf by responsible investment and stewardship teams. “As long as we can convey how our approach protects investment returns, members are supportive. Our pensions committee continue to endorse our stewardship and broader responsible investment approach,” she said.
Like WMPF, many pension funds in the UK and beyond are exploring new ways to engage members, understanding the need to explain the evolving practice of stewardship to address the risks to portfolios.
“There are some interesting examples of using deliberative democracy exercises to bring the membership into the policy discussion in a more productive way. This feeds into questions around resources, expectations, and implementation. We need to be clear on our basis for increasing that resource,” noted Thorne at Merseyside Pension Fund, pointing to effectiveness of contributions to collaborative stewardship as one of several areas needing explanation.
Stewardship has an opportunity to thrive in the sunlight of greater scrutiny – provided its practitioners can use the available tools to deliver compelling evidence of its contribution to long-term value.
