A Glimpse into Investor Stewardship in Practice

At a recent INFINZ seminar, some of New Zealand’s leading asset managers discussed the benefits and challenges of investor stewardship, and what applying it looks like in practice.  

One theme that was noted was the growth in stewardship both globally and in New Zealand. New Zealand’s Stewardship Code has managers of majority of New Zealand’s assets under management signed up to it, and stewardship is a leading responsible investment strategy in many global markets.  

Milford’s Portfolio Manager and Head of Sustainable Investment, Frances Sweetman believes this growth in stewardship and the adoption of the Stewardship Code reflects a “legitimisation and maturation of responsible investment activity”. The Stewardship Code provides a universal standard for what good stewardship in New Zealand looks like, and a platform for investors to increase impact. “It helps to create a consistent and repeatable process around good sustainable investment.”  

The growing interest in investor engagements in New Zealand was also discussed a lot. Investment practice is maturing from ‘invest or divest’ to how investors can use their influence to improve the long-term value of companies, says Frances Sweetman. She says engagement priorities reflect, and try to balance, issues such as increasing carbon emissions, demand for fossil fuel and the questions of returns and fiduciary duty. 

Frances Sweetman advises taking time to prioritise engagements - she says it takes effort from both sides, so spend that effort wisely. “For us prioritizing is a balancing act between identifying where an investee may be posing a higher level of risk to our portfolio, or to society, and where we can make an impact - for example where we are a substantial shareholder, we are likely to have a louder voice.” 

“The Stewardship Code encourages transparency with engagements. We need to normalize what is a very common activity globally, and should be seen as valuable and constructive in New Zealand.” 

At the same time, Daniel Street, Partner at DLA Piper, noted the increasing focus from regulators on stewardship claims and whether they may be considered greenwashing. “Regulators are taking notice of stewardship too, and the same principles apply to any investor related reporting. Any statements should be clear, accurate and consistent. Take care that the overall impression of your stewardship claim matches the impact and influence you have” 

Castle Point Funds Management Partner Gordon Sims told the seminar that stewardship takes into account many externalities that are not always captured in more short-term thinking. “Stewardship means engaging not just with companies. Investors are increasingly speaking up on policy issues, including the current development of modern slavery legislation in New Zealand.” 

Gordon Sims acknowledges effective stewardship activities takes resource, but can be done in a light touch way - for example, by participating in collaborative engagements or by prioritising what is important to stakeholders. “Being a small asset manager shouldn’t prevent you engaging in stewardship - it may just alter the way you do it.” 

Castle Point Funds Management gives the example of one company where there were concerns they weren’t managing their risks around modern slavery concerns properly.  

“The first response from a New Zealand corporate was a strong push back around the level of work required at a board level, and how long the process could take for something that was not currently a regulatory requirement for them. Once we’d explained the timeframe we felt was appropriate, our logic behind the request, and the outcome we wanted, we came to an agreement pretty quickly. Supplier selection policies have already been changed, and we expect them to file their Australian modern slavery statement this year.” 

Frances Sweetman says the Code is a ‘comply or explain’ Code, acknowledging it’s a journey for companies, and it encourages them to work towards compliance while describing their progress. As an example, Milford is working towards its conflicts of interest policy. 

In the coming year, Gordon Sims thinks Signatories should focus on collaboratively engaging with investees. “I suspect many investment managers are looking for similar outcomes from their engagement efforts, but I’m not sure that our investees hear a common voice from us. International research shows collaborative engagements can be three times more effective, while reducing the burden on companies.” 

He also advises that seeing change from these engagements can take time, due to the nature of a company's reporting cycle. It’s important to stay focused and accept change is unlikely to be immediate. “We’re all still only starting this journey, there’s plenty to be done,” he says. 

Thanks to INFINZ and the Aotearoa New Zealand Stewardship Code for organising this event, and to DLA Piper for hosting it.