In focus

10 stewardship myths busted


In a world where the word “sustainability” features everywhere and is in everyone’s mind, the word “stewardship” seems almost old-fashioned. We think it is anything but.

It is an inseparable part of investment, and sustainable investing cannot occur without it.

But there is considerable confusion about what stewardship means and how it works in practice.

We bust ten of the most common myths and set the record straight for how we Schroders holds companies to account.

Although the existence of stewardship codes is helpful to indicate best practice, it is not a guarantee for effective or successful investment outcomes. Analysis of the fundamentals is more reliable in this respect.

The full paper can be downloaded here or at the bottom of this article.

10 stewardship myths

1. Stewardship is a compliance exercise

Codes are appearing around the world trying to define best practice in stewardship.

A strict definition could imply that there is a specific formula for success. But stewardship is not a box to be ticked.

It is a complex term, that includes a diverse toolkit of activities which interconnect and feed into each other.

We identify eight faces of stewardship:

  • allocate
  • monitor
  • engage
  • vote
  • research
  • educate
  • collaborate
  • influence

Which means that...

...stewardship is an integral part of investment and not a box-ticking exercise.

2. Stewardship is all about shareholder primacy

Our stewardship is driven by the principle that companies must deliver long-term value for shareholders and have due regard for stakeholders including lenders, employees, communities, customers, suppliers, regulators and the environment.

Indeed, as companies do not operate in a vacuum, it is questionable whether they can create value if they do not consider all their stakeholders.

Which means that...

… stakeholder interests play a big part in companies’ ability to deliver long-term value.

3. Stewardship varies across holdings of the same company

In stewardship, there is strength in numbers.

Aggregating our holdings of the same company across funds gives us greater clout and increases the chances that that company listens and reacts to our engagement.

We do consider the views and preferences of our clients through two global surveys.

Which means that...

… stewardship is best when it takes place at a firm-level, aggregating all the different holdings of the same company across products.

4. There is a “typical” way to engage

Each engagement is unique.

There are different drivers that flag and prioritise companies. There are different ways in which we interact with them. There are different approaches across geographies and asset classes.

All this means that there is a mosaic of different tools and which one we choose, depends on the circumstances of each case and what experience has shown to be most effective in a similar situation.

Which means that...

… no two engagements are the same.

5. Engaging is about escalating

A large part of stewardship and our engagement with companies is about fact-finding, seeking additional understanding and gaining insights about business models.

This helps build good, long-term relationships with companies, increasing the chances of success when we do perceive risks and wish to facilitate change.

We have a mechanism for escalating concerns but for this to be effective, we need to have established regular dialogue.

Which means that...

… the foundation of effective stewardship is regular, non-confrontational communication with companies.

6. Divestment is the only way to affect real change

Divestment can be a powerful tool for active managers but should not be used lightly.

One alternative is engagement and stewardship, in other words managing the existing holdings rather than exiting our positions in the face of the first issue that arises.

This is especially relevant where the holdings may pass into the hands of other, potentially uninformed and disengaged, investors.

Which means that...

… divestment will occur if it is in clients’ best interests but there are many, potentially value-creating, ways to escalate concerns before it comes to that.

7. Voting against company management is the only proof of an engaged investor

Voting against management or abstaining from voting are ways of escalation and we do so if we believe it is in the best interests of our clients.

But this typically follows engagement that has not achieved the desired outcome and there is no indication that it will.

Which means that...

… voting against is an indication that preceding engagement has been rather ineffective.

8. Stewardship is run separately from investment

The reason for exercising stewardship is that it is part of being invested in a company.

Within Schroders, we integrate sustainability into investment and our stewardship team works together with the investment teams across the organisation, using the insights gained from thematic engagements to inform decisions.

Which means that...

… there is only one voice between stewardship and investment.

9. Sustainable investment is not about stewardship

Sustainable investing can describe investment approaches that target a specific outcome such as excluding tobacco from a portfolio but it also describes processes and how holdings are overseen.

This is independently of whether these holdings are part of a thematic strategy that, for example, targets climate change or not.

Stewardship is an integral part of how sustainability can be delivered.

Which means that...

… stewardship is an integral way to implement sustainability.

10. Stewardship is opaque and takes place behind closed doors

We disclose our firm-wide stewardship activities in our quarterly and annual Sustainable Investment Reports, which are complemented by a monthly voting report.

There we report on the total number of engagements and the companies engaged with and we highlight case studies after these have come to a close.

Engagements are kept confidential while they are ongoing because going public is not conducive to the relationship building that is so essential for effective stewardship.

Which means that...

… the details of each discussion may not be disclosed but the goals and outcomes of engagement as well as voting decisions are published regularly.

For more, download the long and short version of this article in the PDFs below: