High levels of engagement activity between asset managers and investment holdings, in response to regulatory requirements, are at risk of driving down the quality of engagement reporting and an “unintentional stewardship stampede”, according to Wheb Asset Management’s latest Stewardship Report.
While the report welcomed the fact investment managers have intensified their engagement activities and are showcasing their related disclosures, it also stated asset managers should take a pragmatic and outcome-driven approach to engagement.
Earlier this month, Wheb’s impact report highlighted concerns “an excessive focus on engagement activity metrics… does not adequately capture the depth or nuances of meaningful stewardship that will influence real-world outcomes”.
Racheal Monteiro, stewardship and climate analyst at Wheb, commented: “In recent years we have seen a huge shift in engagement. Rather than being considered a nice-to-have that is ancillary to asset management, instead it is being treated as part of the core client proposition.
“We are seeing company engagement evolve from basic data-gathering into interaction aimed at delivering real-world change. The quality and focus of reporting must also now step up.
“Reporting the number of engagements is an inadequate proxy for the real purpose of engagement which is real-world change. This can be evidenced and reported on in terms of policies, procedures and ultimately performance that advances sustainability.”
Likewise, Lindsey Stewart, director of stewardship research and policy at Morningstar Sustainalytics, said there has been an “increasing focus” on defining objectives and disclosing activities and outcomes as asset managers report in line with the 2020 Stewardship Code.
“If you disclose your volume of activities and present it as being a ‘good thing’, it creates internal pressure to report more of it each year. There are a number of voices in the market who have decided we’ve reached a point where ‘more’ does not necessarily equal ‘better’. It’s true no single metric is an adequate proxy for real-world outcomes, but at the same time, the metrics remain important. The onus is on reporters to ensure what they disclose is truly meaningful.”
