Adelaide Chiu, our Head of Responsible Investing, speaks about stewardship, and the future of our Active Ownership Reports.
As an asset manager, NEI is committed to doing all that we can to help our investors achieve their goals. That entails seizing opportunities to grow their wealth while prudently managing risk. Easier said than done, as any investor would attest. Success requires many different tactics to be deployed as part of the overall investment strategy.
Some of the tactics we undertake, such as proxy voting and corporate engagement, are part of the package of rights bestowed on us as shareholders. At NEI we have long believed that investors have a responsibility to exercise these rights in pursuit of positive financial, environmental and social outcomes. In other words, to generate long-term sustainable value for clients. Related activities include policy advocacy and participation in collaborative groups, where the goal is to influence the direction of the investment industry, corporate culture, and the regulatory landscape on a broader scale.
Until now, we have grouped this work under the heading of active ownership. Beginning this year, you will see us using a new umbrella term: stewardship. We are not introducing new or different activities to our program; we are simply renaming it with renewed purpose and a broader remit.
The Principles for Responsible Investment defines stewardship as “the use of influence by institutional investors to maximise overall long-term value including the value of common economic, social and environmental assets, on which returns and clients’ and beneficiaries’ interests depend.”1
What we want to impress upon investors is the vital importance of the second, less familiar half of the definition, related to maximising overall long-term value of “common economic, social, and environmental assets on which returns and clients’ and beneficiaries’ interests depend.” (Italics ours.) Working diligently to safeguard the value of such critical assets—a stable climate; citizens’ health and employment; fresh water, plants and animals and other natural resources; a diverse workforce—is every bit as important to what we do on behalf of clients as asset allocation, navigation of market cycles, and interest rate changes, to name just a few traditional investment considerations.
Digging deeper, we look to the International Corporate Governance Network as they explain the purpose of stewardship:
...investor stewardship helps to promote high standards of corporate governance which contributes to sustainable value creation, thereby increasing the long-term risk adjusted rate of return to investors and their beneficiaries or clients. At an investor level, stewardship is about preserving and enhancing long-term value as part of a responsible investment approach. This includes the consideration of wider ethical, environmental, and social factors and the consideration of relevant systemic risks as core components of fiduciary duty. In a broader context, stewardship enhances overall financial market stability and economic growth, and, by focusing on long-term value creation, stewardship is directly linked to sustainable benefits for the economy, environment, and society.2
It is also useful to upend the definition and say explicitly what stewardship is not. Stewardship is not about promoting short-term performance; it is not about promoting the performance of individual companies, sectors, or geographic regions at the expense of long-term value creation. Even if this were beneficial to client returns in the short term, the negative impacts would eventually be felt and the damage at that point too late to reverse, both for portfolio returns and for the global economy and environment.
This edition of our Active Ownership Report marks the end of the quarterly publication. Later this year, NEI will publish its first comprehensive annual responsible investment report. That will be the ongoing home for disclosure about our stewardship and other RI activities such as security evaluations, sub-advisor updates, impact metrics, and climate strategy progress. We look forward to continuing to share our progress on all that we do to help investors achieve their goals.
