Engagement progress is stalling in many parts of the industry with 30% of companies unable to evidence that ESG is driving specific changes, while hiring for engagement and stewardship roles has come to a standstill.
In the latest annual sustainable investment survey carried out by Redington, the number of asset managers hiring dedicated stewardship and engagement staff has plummeted over the past year; only 34% added to these specialist teams in the past 12 months, a stark contrast to the 80% that expanded these teams the previous year.
Output also appears to be limited, with only 38% of groups providing statistical data on specific stewardship activities. Redington said even in cases where the strategy states it is ‘engaging for change’ as part of its stewardship approach, the level of statistical evidence rises to just 51%.
Furthermore, 30% of managers – the same figure as last year – were unable to evidence ESG views driving specific changes in investment portfolios, which Redington suggested could be further evidence of manager actions falling short of ambitions.
Last week, the Financial Conduct Authority said it had found stewardship activities in the UK are not meeting sustainability guiding principles, ahead of the publication of its Sustainability Disclosure Requirements. Specifically, the regulator said “stewardship approaches generally did not meet our expectations”, stewardship activities were difficult to identify from fund literature and there was a lack of clear examples of progress.
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Paul Lee (pictured), head of stewardship and sustainable investment strategy at Redington, commented: “As the integration of ESG has grown, so has the resource required to support it. While wider market conditions will have impacted the latest numbers, this is a significant hiring slowdown – perhaps indicating that, as labour markets tighten, stewardship and engagement is an area that managers are willing to cut.
“We would hope that, regardless of how much resource is in place, managers are taking steps to ensure their ESG integration and engagement efforts stand up to scrutiny. However, the detail raises yet more questions around the extent to which these are actually influencing investment processes.”
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As part of its annual SI Survey, the investment consultant engaged with 127 managers around the world, covering 281 strategies and an aggregate £39trn in combined assets under management.
Amid the slowdown in hiring and limited evidence of engagement, it also found some stewardship teams reporting extremely high work loads; one manager reported no fewer than 13,000 individual stewardship actions in a year, which equates to nearly 500 actions per member of its stewardship function, and another seven managers reported even higher possible workloads, some into the 1,000s of actions.
Lee added: “At a broader level, this year’s survey raises clear concerns about the pace of progress on sustainability issues – at a time this is vitally needed. How can managers claim to be driving change when so many are still unable to evidence specific engagement efforts or investment decisions that were influenced by ESG in the past year? Staying still is simply not good enough.”