Stewardship in Perspective

Stewardship in Perspective

Observations and insights into the future of sustainable investing from the most recent PRI (Principles for Responsible Investing) conference.

Market Developments

PRI in Person 2019

In case there were any doubts about the increasing focus on responsible investment, the Principles for Responsible Investment (PRI) in Person, the leading global conference on the subject, was attended this year by more than 1,600 delegates – making it the largest responsible investment conference to date. The number of signatories to the PRI also continues to rise and now is above 2,300 (there were only 600 when we first signed in 2009).

A key theme of the conference was regulation. Extensive policy and regulatory developments have been taking place across many jurisdictions – most notably in Europe where the Shareholders Rights Directive II, the European Sustainable Finance Action Plan and the upcoming revisions to the UK Stewardship Code all feature prominently. A common theme of these is a focus on outcomes – the ‘so what’ of active ownership and engagement – essentially asking for greater disclosure from asset managers of their activities.

An age of urgent transition

The PRI conference took place under the banner of ‘Responsible investment in an age of urgent transition’. One important part of this transition is clearly the move to a lower-carbon economy – a key element of the target to achieving the UN Sustainable Development Goals (SDGs) by 2030. Current trajectories for this transition remain far out of line with the ambition set at the Paris Climate Conference back in 2015 of a ‘less-than-two-degree pathway’ (keeping the global temperature rise this century well below 2ºC above pre-industrial levels). To get there, we will require significant changes in behaviours and policy.

The PRI has just updated its Inevitable Policy Response, which looks at what is required to get close to achieving this ambition. It expects a sharp and disruptive policy response in the early to mid-2020s, which will have consequences for financial assets.

Consequently, there is also a focus on understanding the extent to which the financial system is incorporating this. From 2020, the PRI reporting framework will require asset managers to report on a number of climate-change factors (aligned with the Task Force for Climate-related Financial Disclosures [TCFD] framework). It is also worth noting that almost a third of PRI signatories referred to the SDGs in their reporting, and the goals feature increasingly in discussions with clients around engagement and impact.

Active ownership

A related feature of the conference was the focus on active ownership, looking at both collaborative and private engagement as well as voting. Active ownership is increasingly coming under the banner of stewardship at the PRI and reflecting this, the committee that I serve on (the ESG Engagement Committee), is being repurposed as the Stewardship Committee, with the aim of overseeing these activities. The PRI reporting and assessment framework will also move to reflect this in measuring the quality and effectiveness of outcomes and how to address the ‘freerider’ problem (investors who benefit from the shift to active engagement without any of the associated costs).

GPIF, the Japanese pension fund, talked about its approach, with ESG integration and engagement as key elements of manager assessments, and engagements alone accounting for up to 30% overall. GPIF firstly verifies that outcomes are being pursued (and away from the focus on policies); the pension fund evaluates how the asset manager is structured (for example its own corporate governance and approach to remuneration) and then looks at how engagements are screened or prioritised. In addition, GPIF is also prepared to pay for stewardship – recently employing two local asset managers with additional fees based on stewardship, requiring them to provide key performance indicators (KPIs) for engagements and monitor progress.

Data and corporate reporting

A third feature of the conference was data and corporate-reporting frameworks. The proliferation of frameworks, standards and service providers – with their attendant questionnaires and inconsistent data sets – has created a significant burden for the corporate sector. There is a move to try to coalesce around some of the standards.

The ‘backbone’ consists of the Global Reporting Initiative (GRI), effectively the non-financial ‘data’ for corporate reporting, and the Sustainability Accounting Standards Board (SASB), which has the remit of commentary and reporting around materiality.

There was also an interesting observation from the UN Global Compact (UNGC). This initiative has set out ten principles focused on responsible business practices. The UNGC has a signatory base of more than 10,000 companies, but it questioned the reliability of data offered by service providers. As an example, most data providers use the ten principles of the GC and then look for compliance of these principles as a starting point for identifying sustainability. However, the UNGC itself does not have a framework for accurately assessing this, so these decisions should be treated with caution.

On a related topic, there was a significant level of comment about the influence of the large service providers (that is, MSCI and Sustainalytics) and the potential need for regulation – this is an area worth watching.

Action on modern slavery

The conference ended on a sober note with a focus on modern slavery and human rights, noting that 1 in 185 people (some 40 million) are currently trapped in modern slavery, 70% of whom are women. Two moving presentations were featured from individuals who had escaped slavery and have helped shine a light on some of the practices. They noted that the key driver is money, hence there was a focus from the PRI on the role of financial services in addressing the issue. With a greater focus on this by clients, this will be an area to look at in more detail.

Climate change – IPCC Oceans and Cryosphere

The UN Climate Action Summit took place in New York towards the end of September. A number of reports were released to coincide with the summit, including the Intergovernmental Panel on Climate Change (IPCC) special report on The Oceans and Cryosphere and Climate Change. The report highlights that the ice sheets are melting at an increasing rate, which in turn worsens the pace of sea-level rises and affects various ecosystems more acutely. It also makes extreme sea-level events more likely, potentially becoming annual events by 2050 (from once in a century now).

The report suggests the impact on indigenous and coastal communities is large and any delay in acting may limit the ability for adaptation. The oceans form an incredibly important role as a buffer against how hot land temperatures get, with the report finding there is high confidence that oceans have taken up ‘90% of the excess heat in the climate system’ but that it is also virtually certain that the oceans are warming unabated. Warming oceans clearly have a profound impact on marine life and ecosystems.

In the context of this third report (following on from Land and the special 1.5-degree report), the PRI Inevitable Policy Response document takes on greater significance.

Martin Currie

Governance and Sustainability Ratings

Clients, competitors and gatekeepers are also recognising the benefits of a robust and integrated approach to ESG/ Governance and Sustainability, and data availability is improving. One aspect of our work is the analytical framework and how we express our ESG/Governance and Sustainability views. All our work on ESG/Governance and Sustainability is focused ultimately on the economic success of the underlying business – essentially understanding how these factors may influence the ability of the company to generate sustainable returns (over the long term).

Developing our analytical framework further enhances our overall process and puts us in a position to more consistently identify risks, opportunities, and areas for engagement. One consistent way to express these measures is through a ratings structure that enables us to condense our work into easy-to-use analytical information.

The rating is composed of two parts:


Recognising the different governance frameworks across the globe and our clients’ international portfolios, we take a ‘principles-based’ – as opposed to a ‘rules-based’ – approach. This provides the opportunity to assess governance in the context of individual company circumstances and identify any particular areas of weakness. Our focus is on board quality, management quality, remuneration, capital allocation and culture.


This is an assessment of the extent to which the company has integrated sustainability into its business model and strategy. In referring to sustainability, we think about it in economic terms – what might impact the ability of a company to generate long-term sustainable returns? Our focus is therefore on what is potentially material to the business – relevant environmental risks and social risks – and common factors including climate change, human capital, cyber security and tax.

The framework for our analysis and ratings is set out in a series of consistent areas that we focus on and questions that we ask. This framework allows us to leverage our deep knowledge of the companies and our understanding of the context of the underlying companies. The analytical framework helps to identify risks, opportunities and areas for engagement.

The resulting ratings from each team are based on an informed judgement of the extent to which the companies demonstrate strong practice or face potential risks in the various aspects of governance and sustainability. A consistent approach within each team, combined with deep company knowledge, is making Martin Currie a leader and innovator in this field.


An Environmental, Social and Governance (ESG) investment strategy may limit the types and number of investment opportunities available to a fund and, as a result, may underperform strategies that are not subject to such criteria.


UN Principles for Responsible Investment (PRI) are a set of six principles that provide a global standard for responsible investing as it relates to environmental, social and corporate governance (ESG) factors.

The Shareholder Rights Directive II (SRD II) is a European Union (EU) directive, which sets out to strengthen the position of shareholders and to reduce short termism and excessive risk taking within companies traded on EU regulated markets.

The EU Sustainable Finance Action Plan supports the European Union’s efforts to meets its climate and energy commitments under the Paris climate agreement. These include cutting greenhouse gas emissions by a minimum of 40% compared to 1990 levels and increasing the share of renewables in final energy consumption to at least 32%, versus current levels of around 17%. The European Commission also seeks to encourage capital flows into areas that promote the United Nations’ Sustainable Development Goals as well as managing the financial risks from climate change.

The UK Stewardship Code is a part of UK company law concerning principles that institutional investors are expected to follow. It was released in 2010 by the Financial Reporting Council, and is directed at asset managers who hold voting rights on shares in United Kingdom companies.

The UN Sustainable Development Goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity, and peace and justice.

The 2015 United Nations Climate Change Conference, COP 21 or CMP 11 was held in Paris, France, from 30 November to 12 December 2015. It was the 21st yearly session of the Conference of the Parties (COP) to the 1992 United Nations Framework Convention on Climate Change (UNFCCC) and the 11th session of the Meeting of the Parties (CMP) to the 1997 Kyoto Protocol.

The Inevitable Policy Response (IPR) is a pioneering project which aims to prepare investors for the associated portfolio risks.

The Task Force on Climate-related Financial Disclosures (TCFD) will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.

The Global Reporting Initiative (GRI) is an international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights and corruption.

The UN Global Compact is a leadership platform for the development, implementation and disclosure of responsible corporate practices.

MSCI Inc. is a global provider of equity, fixed income, hedge fund stock market indexes, and multi-asset portfolio analysis tools.

Sustainalytics is a company that rates the sustainability of listed companies based on their environmental, social and corporate governance (ESG) performance.

The Intergovernmental Panel on Climate Change (IPCC) is an intergovernmental body of the United Nations, dedicated to providing the world with an objective, scientific view of climate change, its natural, political and economic impacts and risks, and possible response options.


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