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Sustainability: Stewardship

November 4, 2022

What is stewardship, why is it so important and how can we know what ‘good’ looks like? Stephen Miles, WTW’s head of stewardship and head of equity research, talks to Eleanor Mahmoud from our sustainable investment team about why stewardship is one of the most critical tools an investor has and where we can look to for good examples in practice (e.g. Mining 2030 and EOS at Federated Hermes).
ESG and Sustainability|Investments|Climate
Climate Risk and Resilience|ESG In Sight
Sustainability: Stewardship

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Video transcript

Sustainability: Stewardship


SPEAKER 1: Welcome to WTW's ESG In Sight Spotlight Series.


ELEANOR MAHMOUD: Hi, everybody. This is part of the aligning sustainability goals to pension portfolio session of our ESG In Sight Series. And in this part, we are going to be shining a spotlight on stewardship. Now, this is something which is not only a fascinating area to be involved with as an investor but something we believe is a critical part of investing sustainably for the long term.

So my name is Eleanor Mahmoud. I'm part of the Sustainable Investment team here at WTW. And I'm joined today by my colleague Stephen Miles who is WTW's head of equity research and head of stewardship. Now, Stephen's been at WTW for many years. And he has pushed for effective stewardship for much of that time. And as well as being heavily involved with our own stewardship efforts here at WTW, he is heavily involved with wider industry work too.

So Stephen currently chairs the EOS Client Advisory Board. And at WTW, we have integrated the specialist work of EOS at Federated Hermes into our delegated services. Stephen is also a member of the PRI Stewardship Advisory Committee, the IIGCC Net Zero Stewardship Working Group. And he's a member of the ICSWG-UK Stewardship Group. So he is quite understandably our internal stewardship go-to here at WTW.

So Stephen, thank you very much for joining me today to chat. You and I are very passionate about stewardship. But for those people watching this today who might not really understand what it is, what's your elevator pitch on what stewardship is and why it's so important?

STEPHEN MILES: So I'll start with what. So stewardship is actively looking after your investments. It's about encouraging improvement in areas you might be concerned about. And so the why that follows from that is it's part of comprehensive risk management. It's about protecting and enhancing the value of investments over the long term. And it's also one of the most powerful tools that we as investors can have to have an impact in the real world.

ELEANOR MAHMOUD: OK, great. So if it's such a powerful tool, how do we know how to do stewardship? Is there one way which is the best way for everyone to do it? How should investors know what they should be aiming for when it comes to doing stewardship?

STEPHEN MILES: A good question because stewardship isn't one thing. But an excellent starting point is the UK stewardship code, which you and I both know well. So in that code, it outlines 12 principles and sets a high bar for what good stewardship looks like. It was updated in 2020 to focus more around encouraging signatories to report on what they've done over the period and the outcomes from that. So a show, not just tell, emphasis.

And here at WTW, we're really trying to live up to that high bar. Our 2021 submission was recently approved, I'm pleased to say. And if you read through that, you'll see there's no single way to do stewardship. And you can see that we focus on areas that we think we make the biggest difference. So that would be engaging with asset managers and also collaborative initiatives, some of which we've set up or others that we play a very active role in.

ELEANOR MAHMOUD: Yeah, OK. So this is a really good point actually that you said that every organization is different. So really, of course, it does make sense to kind of pull the levers that you're best equipped for within your own context rather than trying to find a one-size-fits-all solution. So that's very helpful. Thank you.

But in my view, I think collectively as an industry, I do believe that we are falling short on stewardship at the moment. And I appreciate that effective stewardship is far from easy. But nonetheless, I don't think we're doing as well as we could do as an industry.

And I say that both because I think we have a responsibility to do more. But also, as you said previously, we have a great opportunity to actually really have some real positive impact in the world through stewardship. So Stephen, do you think that it's fair to say that as an industry, we aren't doing enough? And what are the big challenges that make stewardship difficult?

STEPHEN MILES: Yeah, I do think that's fair. Important to say there has been a lot of progress on stewardship in recent years. And there is good momentum. But yes, I'd agree with you that we're not doing as much as we should be doing.

And as for challenges, I think of it like climbing a mountain as an analogy, climbing a stewardship mountain. So first, the resources is the obvious one. So resources dedicated to stewardship have grown considerably. But we do need more to engage companies and other issuers across a really quite a wide range of topics.

Secondly, teamwork. So when we look at the total industry, there is duplication and inefficiency that we observe. And I think that groups could work better together. And then finally, direction. So the more we can have accessible frameworks on what good looks like on a particular topic, the better. And we've seen this emerging on climate. But we could do with more of these on in other areas. And these are sort of maps to help guide us where the hazards are that we need to navigate.

ELEANOR MAHMOUD: And you mentioned a wide range of topics there and other different areas. So what are we talking about here with all these different topics?

STEPHEN MILES: So in the interest of time, probably this picture that you can see, which is a picture from EOS that shows how they lay out their stewardship agenda, does give you a sense of the wide range of topics. I mean, over the last decade, the stewardship has evolved to be quite focused on environmental and social issues because it's been evidence that these are impacting the bottom line. And so they need to be well managed. And then more recently within this, there are subtopics such as biodiversity and digital rights that have emerged. So it's really quite a broad field.

ELEANOR MAHMOUD: Wow, so that makes for quite a big challenge there with lots of things to consider and lots of topics to think about as well. So presumably, the logical step is, OK, what's the solution to the challenge? Where can people start? What does good look like? How can you take your first steps on the stewardship mountain?

So I think on this, I would say that for most asset owners, it actually often probably works best as a collective effort rather than going it alone. So people could team up with strong stewardship partners. For many investors, that might mean choosing asset managers that have strong stewardship capabilities or perhaps working with a specialist like EOS, who we've just mentioned earlier. So Stephen, what would you add to that? What would you suggest that people can actually start doing?

STEPHEN MILES: Yeah, good question. So, I mean, I think in terms of starting out first things, the most powerful thing is just asking good questions and really interrogating what's happening on your behalf. So what engagement voting has been done often by asset managers on your behalf.

And then I think another obvious thing is to have a focus. So we saw before how many topics there are. But you don't need to focus on everything. So pick a key issue that you care about from a risk management and broader impact perspective. Focus on that.

And then I think part of your question was also, what does really good look like? And I think examples there, so we've talked about EOS before. And I think they've had a number of very successful engagements. Another example that really stands out to me is the work by the Church of England pension scheme engaging the mining industry following the Brumadinho tailings dam disaster.

And we were really lucky to hear from Adam Matthews from Church of England recently in a WTW Thinking Ahead presentation. And it showed what's really possible if you focus on a key issue, work collaboratively with other investors, with companies, and standard setters in a particular area and are really determined to push things through. And that's now grown into the Mining 2030 initiative, which it's great to see that progress continuing and across a broader range of issues within the industry.

ELEANOR MAHMOUD: Yeah, it's a really, really positive note to end this conversation on. So thank you for bringing that up. And that really is actually a brilliant case study. And I would recommend that everybody has a look at that, looks it up and does a little bit of reading about what they did there because it's a really brilliant example of what can be done when you work together.

So thank you, Stephen, for talking to me today. We would encourage everybody to offer their stewardship efforts where possible. And hopefully this conversation has helped get that started for many people. So thank you for tuning in. And you can carry on exploring other areas of the aligning sustainability goals section of this series as part of the wider session. So thanks very much, everybody.


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