The New Model of Asset Manager Stewardship Activities
Written by Jasmin Sethi and Jackie Cook for SCA client, Morningstar.
The rapid rise of passive investing has been a defining trend of global financial markets over the last 10 years. This trend, along with the growing impact of environmental and social factors on company performance, will play a key role in the future of investment stewardship.
Investment stewardship involves leveraging ownership rights (proxy voting and engagement) to influence the governance of investee companies. For that reason, investment stewardship activities are a crucial part of asset managers’ fiduciary responsibility for fund investors.
We explore the state of stewardship activities, and how passive asset managers can practice stewardship effectively.
Global standards for asset managers’ disclosure of stewardship activities
Many jurisdictions require asset managers to disclose their stewardship activities as part of their fiduciary duty. For instance:
The SEC stipulates that all mutual funds and exchange-traded funds must disclose their proxy voting records and proxy voting guidelines.
The U.K. stewardship code, the first of its kind when it was introduced in 2010, requires asset managers to disclose their engagement activities and material votes. Anticipated amendments would strengthen voting- and engagement-disclosure requirements.
The EU’s Shareholder Rights Directive II, which is set to take effect in the second quarter of 2019, will require both institutional investors and asset managers to disclose information about engagement, significant votes, and their use of proxy advisor services. These disclosure requirements will help ensure that fund shareholders can monitor their funds’ involvement in the governance of portfolio companies.
