All About the Outcomes

ESG Investor

Measuring the impacts of stewardship is far from simple, even as technological innovation begins to smooth the way. 

When it comes to driving sustainability-related performance at portfolio companies, stewardship is one of the most effective tools currently at investors’ disposal. 

As evidenced during ESG Investor’s Stewardship Summit last month, asset owners are increasingly focused on the outcomes of high-quality engagement – as opposed to the number of engagements undertaken each year. 

“Asset owners are increasingly attuned to the fact that financially material risks linked to system-level issues – such as climate change, biodiversity collapse or social instability – are largely undiversifiable,” Clara Melot, Stewardship Specialist at the UN-convened Principles for Responsible Investment (PRI), tells ESG Investor. “As fiduciaries, they may have a legal obligation to consider what they can do to mitigate risks and act accordingly – this is where outcomes-focused stewardship comes into play.” 

If an investor has engaged with a carbon-intensive company on its climate-related ambition, a positive outcome may be that it sets decarbonisation targets to include Scope 3 emissions, or that it develops and publishes a transition plan aligned with the UK-based Transition Plan Taskforce’s guidance.  

In contrast, a negative outcome may be that the company refuses to raise its ambition, or ditches climate solutions funding altogether.  

The importance of measuring and disclosing such outcomes is also coming into sharper focus thanks to an increase in frameworks, codes and regulations requiring investors to provide robust disclosures on their stewardship activities with portfolio companies.  

However, despite emerging technology-driven tools designed to streamline the engagement process, measuring the effectiveness of stewardship outcomes remains challenging for asset owners and asset managers for a plethora of reasons – such as a lack of standardised metrics, accurate attribution, limited visibility, to name but a few. 

“Asset owners have always been keen to take an outcomes- and materiality-focused approach to stewardship as part of their fiduciary duties,” notes Caroline Escott, Senior Investment Manager for Active Ownership at UK pension fund Railpen. “This approach is fundamental to help asset owners make the most of a finite level of stewardship resource and ensure they push managers on the critical issues that matter most to

The full article is available here. This article was published at ESG Investor.