The global pandemic has provided a sobering example of the importance of investor stewardship, and the role it can play in helping navigate such crises. As investment consultants, we take our role seriously and here we provide an update on how we’re supporting our clients in the area of stewardship.

We’ve seen the conversation on stewardship intensify amid Covid-19 as investors sought to understand how their investments were affected, and how companies and their investment managers were adapting to the ‘new normal’. The pandemic has also raised clients’ awareness of systemic risks such as climate change, cyber risk and not to mention future pandemics that could impact their investments. It’s only right that they demand and practise effective stewardship to help protect their investments for the long term.

The UK Stewardship Code 2020 has really strengthened the idea of stewardship, which it defines as follows:

“Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.”

The Code requires investors to look at maximising long-term value and examining how this value leads to sustainable benefits to the economy, environment, and wider society. This in turn will lead to better outcomes for beneficiaries. The Code emphasises that asset owners have an important role in allocating capital and overseeing the broad range of investment activities carried out on their behalf. The investment rationale is clear: laying the foundation for strong returns in five years, ten years and beyond, starts with good stewardship today.

I am delighted to share LCP’s 2020 stewardship report, which describes how we have supported our clients with their stewardship and responsible investment activities in the year to 31 December 2020.

Our stewardship helps our clients fulfil their investment objectives

As a service provider, we understand the importance of our role in the investment value chain in both encouraging and carrying out good stewardship. Stewardship runs through the services we deliver to clients, whether that is helping them formulate their investment policy, set their investment strategy, select a new manager or oversee their existing managers.

We make it easy for our clients to adopt good stewardship practices themselves, for example by making responsible investment an integral part of our fund research views, providing accessible reporting on their funds’ voting records and ESG characteristics, and helping them to understand market-wide risks to inform their investment decisions.

We also work behind the scenes to strengthen stewardship across the industry, for example through ongoing engagement with managers to encourage better practices and communicate our clients’ requirements, helping design products that enable more responsible allocation of capital, and taking an active role in industry collaborations.

The key actions we share in our 2020 stewardship report include:

• Developing our stewardship support for clients
  • Streamlining the collection and review of fund-level voting data from investment managers.
  • Developing a dashboard that provides portfolio-level ESG reporting for listed equity and corporate bond funds.
  • Providing climate scenario analysis that helps clients understand climate-related risks and the mitigating actions they could take.
• Strengthening our resources and capabilities
  • Increasing our team of dedicated responsible investment specialists and the time we spend on this important area.
  • Working with investment managers to develop new investment products to meet the climate-related and sustainable investment objectives of our clients.
• Engagement with investment managers to encourage best practice
  • Encouraging managers to sign up to the 2020 Code.
  • Setting expectations for managers’ voting and engagement practices.
  • Deepening the stewardship due diligence in our manager research.
  • Publishing our 2020 Responsible Investment (RI) survey.
• Active roles in external groups and collaborations
  • Chairing the Pensions and Lifetime Savings Association (PLSA) group that produced an Implementation Statement guide for UK pension scheme trustees and supporting it with a secondee.
  • Helping to draft the Pensions Climate Risk Industry Group (PCRIG) guidance on climate change for UK pension scheme trustees.
  • Collaborating in the formation of the Investment Consultants Sustainability Working Group (“ICSWG”) and proactively contributing to working group initiatives.
  • Engaging with regulators and responding to industry-wide consultations such as the Department for Work and Pensions (DWP)’s consultation on the introduction of climate-related regulations for UK pension schemes with over £1bn of assets.

Stewardship is a powerful way of better aligning interests throughout the investment value chain for the benefit of end-investors and society as a whole. We continue to raise our game, engaging with managers to keep the bar high, and encouraging clients to aspire to and reach best practice in this area.

Read our stewardship report for more detail on what we’ve been doing on your behalf.