ICCR guide to engaging asset managers on 'systemic stewardship'

Steven Owen
2 minutes ago
3 min read

The ICCR, in collaboration with The Shareholder Commons, has published a compelling new guide for the trustees and staff of diversified asset owners: Engaging Asset Managers to Responsibly Steward Fund Assets and the Systems that Support Them. The objective of the guide is provide asset owners - including faith-based asset owners - with a toolkit to understanding and practicing system stewardship.

The guide defines system stewardship as 'the work that investors do to protect the social, environmental, and economic systems that are vital to the financial returns of their whole portfolios', and makes the case that asset owners should instruct their money managers to 'go beyond the traditional view of investment risk as something to be assessed solely on a company-by-company basis'. Instead, the guide argues that asset owners and their portfolio managers need to take a stewardship approach that takes into consideration broad systemic risks affecting the entire market, such as climate change, persistent income inequality, and the inequitable delivery of healthcare that 'threaten our planet and its people'.

Given that a significant portion of total return for actively managed portfolios is provided by the market return - or beta - and that virtually all the return (other than tracking error) of passive portfolios consists of beta, it follows that if widespread stewardship can contribute to higher beta returns, the practice represents a prudent ongoing and long-term consideration for investors to take.

The guide cites various ways stewardship can be expressed in practice, including:

Voting - On measures such as the election of directors, executive compensation, shareholder proposals, etc.
Direct engagement - Meeting with and engaging companies to encourage certain disclosures and practices
Policy engagement - Seeking to influence laws and regulations that impact business practices
Security selection - As the decision to purchase or sell a security may influence the behavior of the issuer

These ideas resonate with the position presented in the FaithInvest report published earlier this year, Faith-consistent Investing: Challenging the Performance Penalty Myth.

In that report, FaithInvest Executive Chair Dave Zellner stated: 'By taking a holistic, long-term view that considers systemic risks and opportunities, FCI can not only align with investors' values but also potentially enhance long-term financial performance'.

Further, 'systemic risk management focuses on issues that affect the entire market, which will ultimately improve overall market returns— producing a rising tide that lifts all boats. If all investors shift a portion of their governance attention to addressing systemic risks, all investors will realise better outcomes'.

The ICCR guide provides practical insights and compelling rationales for stewardship practices that can benefit portfolios - in keeping with fiduciary obligations - while seeking to address systemic portfolio risks. Download the guide via the button below.

FaithInvest is an international nonprofit organisation that empowers faith groups to invest in line with their beliefs and values. FaithInvest is not authorised by the Financial Conduct Authority and does not provide financial or investment advice. Information provided on FaithInvest’s website or its other communication channels does not constitute financial or investment advice. If you wish to receive any form of financial or investment advice, please consult a qualified and independent financial advisor. You should conduct your own due diligence in relation to any investment opportunities or strategies you choose to pursue. FaithInvest does not promote any specific investments or opportunities and cannot therefore accept responsibility for any specific financial or investment decisions you make following participation on its website platform. For more information please visit FaithInvest.org.