‘Holding managers accountable’ - $1.5trn asset owner coalition sets out new guideline on stewardship alignment

A coalition of asset owners representing more than $1.5trn in assets has issued a joint statement on climate stewardship, aiming to provide managers with greater clarity on their expectations. The group includes major investors from the UK, Europe, Australia, and the US, such as Phoenix, Aegon, Scottish Widows, Nest, Sisters of Charity of St. Vincent de Paul of New York, Swiss Pensionskasse Basel-Stadt, and Australian Ethical Investment.

The statement calls on managers to use a combination of industry and public policy engagement, prioritise collaborative stewardship initiatives “where permissible”, and adopt a systematic approach to voting, underpinned by a robust theory of change.

While the guidelines have been several years in the making, their publication comes at a critical moment. The world’s largest asset manager, BlackRock, recently announced its departure from the Net Zero Asset Managers initiative, prompting the suspension of the alliance’s activities pending a review. Asset manager stewardship is clearly in crisis — but can clearer input from  asset owner clients help reverse the trend?

Net Zero Investor spoke to Leanne Clements, head of responsible investment at the People’s Partnership, who led the development of the new guidelines; Shipra Gupta, investment stewardship lead at Scottish Widows; and Vaishnavi Ravishankar, head of stewardship at Brunel Pension Partnership, to explore this further.

The context

The issue of stewardship alignment between asset owners and managers has been a concern for several years. Following a difficult 2023 proxy season, during which several oil and gas companies backtracked on their climate commitments, UK asset owners led by LGPS Fund Brunel convened discussions with some of the world’s largest asset managers to explore how greater alignment on climate stewardship could be achieved.

Many asset owners had made strong commitments to decarbonisation plans for major oil and gas companies but found themselves outvoted by a majority of shareholders — including the very managers they had hired — who consistently opposed progressive climate measures, Clements explains.

“We saw several companies, particularly in the oil and gas sector, backtrack on climate commitments, which raised serious concerns about how well our managers' stewardship practices aligned with our long-term goals.”

Even a reasonably sized pension fund managing tens of billions of pounds has limited influence compared with the world’s largest asset managers — BlackRock, Vanguard, and State Street — who frequently appear as major shareholders in these firms. This challenge was explored in Net Zero Investor’s Silent Majority series.

An in-depth 2023 review by professor Andreas Hoepner, commissioned by the UK Asset Owner Roundtable, found significant misalignment between managers and asset owners on stewardship, particularly among larger US-based managers.

When presented with these findings, some managers said they needed greater clarity on asset owner expectations, Gupta explains.

“One of the main pieces of feedback we received was that managers wanted clearer, unified expectations from asset owners. That was the foundation for phase two of the project — bringing together a set of principles to guide climate stewardship implementation.”

“This isn’t about dictating every move but providing clarity on long-term expectations and empowering stewardship teams,” adds Ravishankar.

Reversing the tide?

However, since the launch of the initial review into stewardship alignment, the world has changed dramatically. With Donald Trump re-elected to the White House and some of the world’s largest asset managers retreating on climate, can greater clarity really reverse the tide?

Gupta is cautiously optimistic: "Fund managers need to be empowered by their asset owner clients to deliver robust climate stewardship. This is especially important in today’s challenging landscape. We’re not just setting expectations; we’re also aiming to empower stewardship teams so they can effectively deliver on their clients’ objectives. Strong signals from asset owners are critical to supporting them during this period.”

There is, however, another interpretation of the statement, which encourages managers to prioritise collaborative initiatives on climate “where permissible”. Does this risk validating the actions of managers such as BlackRock and Vanguard, effectively handing them a "get out of jail free card"? After all, who gets to define at what point membership of a climate alliance really is "permissible"?

While declining to comment on individual managers, Clements acknowledges the complexity of the issue: “We recognise this is a nuanced point, but we felt it was important to acknowledge the operating challenges that some managers face. While we want to emphasise the critical role of collaboration, we also understand there may be constraints in certain jurisdictions or contexts. Not including that nuance could have introduced risks to the success of the project.”

Gupta agrees, emphasising the need for pragmatism. Scottish Widows, a significant UK client of BlackRock, has previously pushed for the introduction of voting choice, which BlackRock implemented in 2022.

“We stay engaged with managers even if they leave certain initiatives, but we expect them to show how they are pulling other levers to hold companies accountable on climate. BlackRock is a good example — despite the challenges, they remain one of the largest shareholders in many companies, and it’s essential they continue using their influence responsibly.”

Escalation mechanisms

Climate coalition membership aside, this raises the question: what do asset owners intend to do if these efforts fail and managers continue to retreat from climate commitments?

The asset owner guideline includes a range of escalation mechanisms, though it does not prescribe a common approach to avoid putting US-based asset owners at risk of violating SEC rules.

“For some asset owners, poor or misaligned stewardship activity could contribute to a downgrade in asset manager ratings, a reassessment of the mandate, or the selection of asset managers demonstrating greater alignment with the pension scheme’s objectives,” the statement reads.

The People’s Pension has previously said it would consider divesting from managers if insufficient progress on stewardship is made, Clements acknowledges.

“Escalation isn’t a one-size-fits-all process and varies among the signatories. Speaking for The People’s Pension, our process is guided by our Responsible Investment Policy and designed to allow for ongoing dialogue. Our aim isn’t to be punitive but to help managers improve. However, if meaningful progress isn’t achieved within a reasonable period, it’s clear that further steps will be taken. For us, stewardship isn’t just about setting expectations but ensuring managers are held accountable,” she concludes.

Garnering support for the statement remains ongoing. For further information, or to sign up to the statement please contact: [email protected].