The Global Stewardship Movement Draws Passive Investors Into Active Ownership
Written by Jackie Cook and Jasmin Sethi for SCA client, Morningstar.
How the most powerful players in the financial industry exercise their control rights as stewards of capital has important implications for both the health of capital markets and of the planet. In the decade since the global financial crisis, passive investing has reshaped both the asset-management industry and corporate-ownership structure.
Here’s a look at the role asset managers play in the global stewardship movement.
The Big Three are using their voting power to promote sustainability
A substantial amount of the voting power at most large corporations rests in the hands of “The Big Three” asset managers: BlackRock, State Street, and Vanguard. These asset managers came out on top because index-tracking fund strategies tend to benefit from being early movers and practicing economies of scale.
Because collectively, the Big Three have so much voting power, these “ permanent , universal owners” are able to substantially influence corporate-governance arrangements that underpin sustainable business practices.
And now more than ever, large financial institutions that provide passive investing strategies—like the Big Three—have heightened incentives to do so. Namely, they’re responding to growing investor demand, plus increasing evidence of the role that environmental and social factors play in portfolio health.
Regulatory trends are driving asset-manager stewardship
Under both U.S. and EU securities law, investors play a central role in monitoring and shaping corporate-governance practices. This responsibility of investors as active owners has become particularly important for financial-market regulators in the wake of the 2007-2008 global financial crisis.
A few ways corporate governance has risen in prominence include:
