Four Questions Every Stewardship Report Should Answer

Dr. Rory Sullivan and Robert Black

It’s a crunch time of year for investor stewardship teams with the deadline to apply for Stewardship Code signatory status rapidly approaching.

At Chronos we work with a wide range of asset managers, pension funds and other investors to go beyond box-ticking and produce comprehensive and meaningful stewardship reports.  We help clients to draft and/or review reports and to find value in stewardship activities including setting clear objectives and building capacity for impact and future reporting.

In our experience, an essential part of navigating stewardship reporting is to answer four critical questions: Why, When, What, and What Next?

1.         WHY

Before diving into reporting against each of the UK Stewardship Code’s Principles the best stewardship reports are very clear about who the organisation is and why stewardship is important to it.

For example, in its 2023 Responsible Investment and Stewardship Report, Aegon UK explains that its stewardship activities are part of its risk management over a range to time frames contributing to its mission to help “approximately four million customers live their best lives” and part of, “ensuring the resilience of our investments to systematic risks such as those presented by climate change”. Brunel Pension Partnership is another good example explaining stewardship helps it ‘invest in a world worth living in”.

 Before diving into the detail establishing the clear purpose behind stewardship actions connects readers with the bigger picture.

2.         WHAT

It’s important for stewardship reports to be very clear about the scope of reporting. That means defining which entities are covered by the report and which entities are not covered by the report.

This can include nuances based on different asset classes and different corporate structures. For example, we worked with Storebrand Asset Management on their 2023 Stewardship Code report to help them explain the relationship between Storebrand Asset Management (SAM) and its ultimate parent entity Storebrand ASA. The report explains the entities and brands that are included and excluded from the scope of the report (and the reasons why), and explains the oversight role played by the Storebrand Risk and Ownership Team both across Storebrand ASA and in Storebrand Asset Management specifically.

3.         WHEN

 The annual nature of stewardship reporting tends to lead investors to reflect only on a specific 12-month reporting period. But active ownership is a multi-year activity and the changes it facilitates tend to take several years to manifest. The best reports reflect that.

One good example is the Church of England Pension Board’s 2023 Stewardship report which provides a review of its engagement with the mining industry since 2017. The report describes how this engagement was intensified following the disaster at Brumadinho, Brazil in 2019 and how the Pension Board led a $24 trillion investor coalition over the following years to improve the disclosure of waste storage sites (tailings storage facilities) across the mining sector (in partnership with organisations such as the ICMM (the International Council on Mining and Metals) and UNEP). This stewardship activity led to the development of a new global standard of practice for tailings facilities (the Global Industry Standard on Tailings Management) and, in 2023, the launch of The Global Investor Commission on Mining 2030.

4.         WHAT NEXT?

The fourth question stewardship reports should answer is: What are you going to do next? This signals that the report is just a marker at a point in time not a full stop.

 For example, the Brunel Pension partnership 2024 Responsible Investment and Stewardship Outcomes report identifies a series of next steps and actions on a wide range of stewardship activity including voting and policy. On voting it talks about how it will strengthen its measurement and reporting of real-world outcomes. On engagement how it will advance its engagement dialogues on biodiversity strategies and implementation, with a focus on urging companies to consider the nexus between biodiversity and physical climate risk. On risk management how it will integrate its new human rights strategy into its risk management processes, and on policy how it will update its climate change policy.

Ultimately, reporting should enable organisations to explain who they are, what they do, how they do it and what they achieve. Top class stewardship reporting can be a great way to turn complex investment beliefs and strategies into a relatable story that resonates with beneficiaries and other key stakeholders.  Such reporting, when done well, should allow organisations to reflect on the organisation activities and through this reflection set a direction for future activities and efforts.

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The Chronos Sustainability team help many UK asset managers, pension funds and other investors to navigate stewardship reporting successfully and to build capacity for the future.
 
Get in touch to chat about how we can help you: robert@chronossustainability.com