"Led by a $1.5 trillion asset owner coalition, new stewardship alignment guidelines are established, aiming to hold managers accountable"
Major Investors Unite to Combat Climate Change
A coalition of asset owners, representing over $1.5 trillion in assets, has issued a joint statement on climate stewardship, marking a significant step towards integrating climate considerations into investment decision-making and ownership practices.
The joint statement, signed by major investors from the UK, Europe, Australia, and the US, including Phoenix, Aegon, Scottish Widows, Nest, and Swiss Pensionskasse Basel-Stadt, among others, symbolises a concerted effort to address climate risk and support decarbonization goals.
The statement comes at a critical moment, following the departure of the world's largest asset manager, BlackRock, from the Net Zero Asset Managers initiative. The departure has highlighted the need for greater clarity on asset owner expectations, leading to the development of the new guidelines.
The accompanying guidelines aim to resolve alignment issues between asset owners and asset managers by providing a clear framework for climate stewardship expectations. This framework helps clarify roles, responsibilities, and engagement approaches to ensure that asset managers act in accordance with the climate-related mandates and risk appetites of asset owners.
For example, the guidelines specify how investments with explicit climate and decarbonization objectives should be managed and engaged with companies to advance emission reductions, as outlined in stewardship programs adopted by firms like BlackRock. This framework enables better coordination and accountability, enabling both parties to collaborate effectively towards shared climate ambitions while addressing challenges like inconsistent engagement and reporting.
The new guidelines are not about dictating every move but providing clarity on long-term expectations and empowering stewardship teams. They call on managers to use a combination of industry and public policy engagement, prioritise collaborative stewardship initiatives, and adopt a systematic approach to voting, underpinned by a robust theory of change.
The escalation process varies among the signatories and is guided by each asset owner's Responsible Investment Policy. The People's Pension, for instance, has previously stated it would consider divesting from managers if insufficient progress on stewardship is made.
The asset owner guideline does not prescribe a common approach to avoid putting US-based asset owners at risk of violating SEC rules. The statement calls on managers to engage in open dialogue with asset owners to ensure compliance with local regulations.
The issue of stewardship alignment between asset owners and managers has been a concern for several years, with many asset owners finding themselves outvoted by shareholders on progressive climate measures. The world has changed dramatically since the initial review into stewardship alignment, and the new guidelines aim to address these concerns.
An in-depth 2023 review by professor Andreas Hoepner found significant misalignment between managers and asset owners on stewardship, particularly among larger US-based managers. The new guidelines aim to empower stewardship teams to effectively deliver on their clients' objectives.
For further information or to sign up to the statement, contact [email protected]. This collective commitment by major investors is expected to influence companies they invest in to align their strategies with net-zero emissions targets, thereby managing systemic financial risks posed by climate change to long-term investment returns.
- In light of the new guidelines, financial institutions could pledge to invest significantly in environmental-science projects, thereby aiding efforts to combat climate-change.
- As the guidelines offer a clear framework for climate stewardship, businesses may find it easier to understand asset owners' expectations and collaborate on decarbonization goals, furthering the finance industry's role in combating climate-change.
