The Long Game

Approaching his 20th anniversary in responsible investing, Rathbones Stewardship Director Matt Crossman reflects on the evolution of stewardship and highlights the power of collective action.

“Responsible investing can mean so much more than voting, but it can’t ever be less than that,” Matt Crossman, Stewardship Director at Rathbones Group, told ESG Investor as part of a conversation during which he reflected over his career. “The core responsibility of a sustainable investor is to use their rights and influence in the companies they own.”

And as a 20-year veteran in responsible investing, Crossman certainly has borne witness to just how far investor engagement can come.

“Stewardship is far more embedded and widespread as a concept,” he said. “Today, no one would argue that investors shouldn’t be conducting stewardship activities.”

A nascent sector

When Crossman joined Rathbones Greenbank Investments – Rathbones’ in-house boutique for ESG investments – as an ethical researcher in 2004, sustainability data wasn’t readily obtainable.

“Greenbank ran its own screening database and my job was to look after it, for example trawling through news sources, aggregating data, and uncovering granular insights on the UK’s largest companies and a few international firms,” he said. “It gave me a grounding in how companies work and their approach to sustainability.”

At that time, the Greenbank team wrote to FTSE companies every year to encourage voluntary disclosures. Crossman was involved in the letter-writing campaign, but recalled it “became obvious that we had influence back the other way”.

After taking on an engagement manager role in 2006, he became much more aware of Greenbank’s main clients, which were large charities, religious faith groups and celebrities. “Clearly, they wanted financial products more aligned with their values,” he said. “Having the long-term best interest of your underlying beneficiaries at heart is the basis of stewardship.”

The first annual general meeting (AGM) Crossman attended was Shell’s that same year, where Rathbones co-filed a resolution asking the oil and gas giant to do a better job on ESG risk management. “There wasn’t the big institutional buy-in [seen today], so we used the minutiae of UK company law to get Greenbank’s individual investor clients to co-file resolutions,” he said.

The engagement initiative had quite an effect, sparking off a debate in the UK around shareholder voice.

“We realised that not only do we have the financial stuff to think about, but also stewardship influence and voting rights,” Crossman added.

All About the Outcomes

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