Seven steps to effective asset manager engagement: A guide for faith-based investors

Back in April 2022, the UN-convened Net-Zero Asset Owner Alliance published a paper: "The Future of Investor Engagement: A call for systemic stewardship to address systemic climate risk." 

While the paper deals specifically with best practices asset owners can take to encourage asset manager attention to climate risks, faith-based asset owners can apply the same principles to any topic they wish their asset managers to address.

Below are key actions described in the paper that faith-based asset owners should take to effectively engage with their asset managers:

1. Evaluate and Monitor Asset Manager Climate Stewardship

   1. Assess the strength of asset managers' systematic stewardship efforts related to climate

   2. Look beyond public commitments to evaluate concrete actions being taken to drive real-world decarbonization

   3. Integrate this evaluation into ongoing Selection, Appointment, and Monitoring (SAM) processes

   4. Challenge the traditional focus on alpha generation against benchmarks when it comes at the expense of addressing systemic climate risks
      

2. Set Clear Proxy Voting Expectations

   1. Establish clear expectations for climate-related proxy voting alignment

   2. Require transparent, merit-based evaluation criteria for climate proposals

   3. Ask for public voting policies that set clear criteria for evaluating climate resolutions

   4. Ensure voting guidelines address director elections and climate transition plans

   5. Monitor voting records for alignment with stated climate objectives
      

3. Push for Comprehensive Climate Action

   1. Require asset managers to address climate change throughout their entire organization's investment and stewardship activities

   2. Challenge managers who offer climate products to some customers while maintaining activities that obstruct transition in other areas

   3. Insist that managers expand beyond corporate engagement to include sector/value chain engagement and policy advocacy

   4. Make clear that strong policy engagement is an expected part of managers' fiduciary role
      

4. Demand Systemic Thinking

   1. Encourage asset managers to leverage their unique position and relationships with portfolio companies

   2. Ask managers to participate in sector/value chain engagements that can provide broader economic insights

   3. Request that managers use their influence to support mandatory climate disclosure requirements

   4. Expect managers to engage in public discourse and policy advocacy to enable systemic change
      

5. Establish Accountability Mechanisms

   1. Communicate that manager mandates may be changed if climate expectations are not met

   2. Make clear that managers who are unwilling to act on systemic climate risks are not authentically representing asset owner interests

   3. Include climate stewardship evaluation in regular manager review processes

   4. Consider climate capabilities and commitment when selecting new managers
      

6. Focus on Real-World Impact

   1. Ensure managers understand that climate risk represents an existential threat to asset owners' core businesses

   2. Request evidence of concrete actions being taken to drive decarbonization in the real economy

   3. Look for managers who can demonstrate how their engagement activities contribute to systemic change

   4. Evaluate managers' ability to influence both individual companies and broader market structures
      

7. Promote Collaboration and Knowledge-Sharing

   1. Encourage managers to participate in collaborative engagement initiatives

   2. Support manager involvement in sector-wide dialogues and policy discussions

   3. Ask managers to share insights from their engagement activities to inform broader strategies

   4. Facilitate coordination between managers to maximize collective influence

The document emphasises that while net-zero commitments from asset managers are important, they are insufficient on their own. Asset owners must ensure their managers are taking comprehensive action across all aspects of their business to support the transition to a low-carbon economy. This includes traditional corporate engagement but must extend to sector-wide initiatives and policy advocacy.

Asset owners are encouraged to be clear that climate risk management is a core part of their managers' fiduciary duty, not an optional add-on service. The document suggests that asset owners should be prepared to change mandates if managers are unwilling to meet these expectations, as this represents a failure to properly represent asset owners' long-term interests.

Success requires adapting traditional asset owner-manager relationships to better address systemic risks. This means moving beyond conventional performance metrics to evaluate managers' contributions to real-world decarbonization and their ability to influence broader market structures and policy frameworks.

The key message is that asset owners must take an active role in ensuring their managers are fully aligned with their climate objectives and are using all available tools – including corporate engagement, sector initiatives, and policy advocacy – to drive the transition to a net-zero economy.

For a related post on establishing and maintaining a constructive dialogue with asset managers, see our recent post Faith-based due diligence: questions every faith-based investor should ask their asset manager.