Responsible investing resources

00.00 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

You go against management, that's a great thing. Or if you vote with a shareholder resolution, it's fantastic.

00.05 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

The investment world is just a microcosm of a broader societal challenge in that respect.

00.10 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

Forget that kind of, when we look at individual votes, like getting the full engagement context.

 

00.19 - Rory Palmer, Asset TV

Hilkka, I'm going to start with you. Could you set the scene for us a little bit here? With everything that's been going on with the misalignment between asset managers and asset owners, given how important the climate risk is, especially to portfolios, what’s the current state affairs?

 

00.32 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

I think what we're seeing is we have a broad understanding that climate change is something that impacts portfolios. The understanding of other topics such as nature risk and nature loss in what that means it's starting to build. A lot of UK investors have set net zero targets over the past couple of years, and now we're in the middle of the debate on how do we implement them? What can we do about? What can investors do about something as significant as climate risk? Asset managers, which perhaps think about this as a kind of fund level issue, how can I look at it from the perspective of credit risk, individual stocks, or the fund itself, asset owners such as ourselves will most often think of this as a portfolio wide topic.

And if you are a passive investor, like we are, we hold a sliver of the global economy. It becomes a case of how can we manage that risk? And because asset owners work through asset managers, that point about how is the asset manager looking at it, and how are we looking at it, and what are the tools that we can both respectfully use becomes very important.

Engagement and the influence that shareholders can have through their proxy voting has typically been one of the tools that investors use to try and mitigate climate risk, communicate with companies, help encourage them to better disclose how their climate strategies are playing out. What their emissions look like, how they are going to transition, and how they understand risk for that in the rest of the portfolio. We're seeing various results and how much engagement and voting has led to better climate outcomes. So I think that's really the debate that we're in the middle of.

 

02.10 - Rory Palmer, Asset TV

Paul, welcome to you. It's a very delicate relationship, right? The asset management and asset owner, but they must work in tandem, especially with an area like this.

 

02.17 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

Absolutely, they're must. And I think, as with any human relationship, it's all about communications and making sure that there is a clear understanding of each party's needs and expectations. And I think a lot of the challenges that we're hearing now about this misalignment are about a failure to communicate as clearly as people think they're communicating, as to what they expect from the asset owners to the asset managers. And I think that there's a lot of dialogue about potentially changing mandates and clarifying those to set higher expectations. And there's also a lot of conversations around just how can we get managers to do more and deliver more, particularly, I think, on the engagements.

 

03.12 - Rory Palmer, Asset TV

Miranda welcome to you last but not least. These conversations are going on. Are they happening quick enough, do you think?

 

03.17 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

I think they are. And obviously, there's a lot of legacy funds and relationships that need to work through this. As Paul said, this communication to understand what the expectations are on all sides and what's achievable. And yeah, I think they are. I think that climate change is coming towards us very quickly, and we all have to work together.

And it's not just asset owners and asset managers. It's broader industry, it's governments, it's all the different players, all working at the same pace, at the same time, all in the same direction. And that's the only way we're going to solve this.

 

03.48 - Rory Palmer, Asset TV

Staying with time, could it be an issue perhaps of time horizons with asset managers and asset owners, perhaps more short-term focus with asset owners the other way?

 

 

03.58 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

I don't believe that's the case, really. As an active asset manager, we are a long-term investors. So when we are looking at our companies that we're investing in, we are setting them targets and understanding where they are on these kind of transition plans. So from an active asset manager, no, we're not short-term.

04.16 - Rory Palmer, Asset TV

Paul, what do you think?

 

04.17 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

Well, I do think that this question about the transition, that every economic actor in the whole global economy needs to transition from the high carbon world that we're currently in, to a lower carbon economy. And that will require everybody to have a plan and to deliver against that plan. And asset owners are highly dependent on their asset managers to hold the companies to account for delivering on those plans, for assessing the quality of the plans that are put in place, and then assessing whether people are actually delivering on them. And that is a long-term game, and it's a long-term dialogue that needs to happen predominantly between the asset managers and the companies. If you don't have that long-term perspective built into the process, then we're not going to make that transition over time. And I think that is a different sort of conversation than the most asset managers are used to having historically, because typically you're thinking about performance over two, three years, maybe occasionally looking out five years and beyond. But really, this is a decadal process, the transition to a lower carbon economy. And therefore, that is a different sort of conversation, I think, that we all need to be having, and we all need to be delivering.

 

05.51 - Rory Palmer, Asset TV

Hilkka, just saying that, do you think then it's a bit of a cultural shift? They're not used to having these conversations. It's going to take a bit of wiggle room.

05.57 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

I think so. And I think where we're moving towards this idea that investors are just having ESG as part of your fund or saying that you do engagement. A couple of years ago, that was enough, that was good practice.

And I think we're now moving into a space where, as you say, we need a bit of a culture shift of what we talk about. You've been engaging for some time. Have you seen the change that you've wanted to see with a company? Has that led to a better view of the company? What kind of view of the company has that led you to have? Are you more confident in their ability to manage climate risk? Are you less confident? How do you see that role happening at the portfolio? Has that impacted your voting behaviour in any way? But also going back to Paul's point about when you're assessing a company and assessing a plan, what's the standard that you are using? What are your beliefs about how an individual asset or perhaps a fund will perform in the transition? And I think on that, we have had fairly short-term focused answers, whether or not that's the reference that managers have said that they use. Do you think we need to get a bit more specific in that conversation?

07.10 - Rory Palmer, Asset TV

Is that a relation to the lack of specificity? It's all quite vague at the minute.

 

07.14 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

I think that varies. I do have to say there's a huge amount of variety in the way asset managers, certainly the ones that I speak to, would kind of communicate their engagement activity and how they think about climate change, and how they think that impacts the companies that they invest in on our behalf. But I do think that the standard is shifting a need to shift.

07.38 - Rory Palmer, Asset TV

I guess it's tough because you can't be too prescriptive with what you say, but also there needs to be something a bit more robust.

07.42 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

You can't be prescriptive at all because you have to understand each individual company's position, and that's why the asset owner is going to be dependent on the asset manager because they are inevitably closer to each individual company that they're investing in on their behalf. You can't be prescriptive, but you can up your expectations over time. I think a lot of the conversations that we've seen in recent times have been more about operational delivery and to use the jargon, scopes one and two of carbon emissions, and much less about scope three, which is harder to measure and harder to understand, but it's all about the emissions in your supply chain and the emissions downstream from your products.

And if we're talking about that transition of every part of the economy, every company needs to incorporate thinking about scope three into their transition plan, and every asset manager needs to be asking companies to do that. And I think that's where there is a bit of a gap still at my end.

 

09.00 - Rory Palmer, Asset TV

Miranda, what do you think?

09.02 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

You're absolutely right. And I think another thing that's changed is the asset owners really asking these questions. I've been in this industry for over 20 years. For the vast majority of those 20 years, the asset owners really asked very few questions, or really had very few expectations, as long as you told them exactly what you were doing, they were happy. There was no questions come back. And now, there are more expertise coming into that market, and there is rightfully more challenge on the asset managers, and we are kind of growing to meet that demand, growing to meet those expectations, and they're reporting, etc. But you know, Paul's absolutely right in the relationships that asset managers do have with companies is that real deep understanding of what a company does, why it does it, where it does it, when it does it and really understanding the scope three’s, but you can't easily quantify, although they are just numbers, when you're looking at it portfolio wide, you have to be careful you're not double counting.

And so, you know, it's not so easy just to say, I want scope 1 and 2 across the board of this and scope 3 of this. There is nuances within that, and they are kind of tricky calculations to do.

10.03 - Rory Palmer, Asset TV

So to Paul's point as well, upping expectations, but also don’t be too unrealistic with the expectations.

10.09 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

Yeah. Yeah. I think we're on a pathway, all of us together, in trying to encourage some of the slower companies to really come up to speed.

 

10.19 - Rory Palmer, Asset TV

Good. Paul, are you quite optimistic at the moment?

10.22 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

I'm always optimistic. I wouldn't be doing this job if I wasn't an optimist. You know, I think we are all learning. I think Miranda is absolutely right about that.

We're all learning, we're all getting better and getting better at challenging at each stage through the investment chain. You know, so the asset owners are challenging the asset managers, the asset managers, the companies and so on. And in each of those steps, we are improving the quality of the ask. We absolutely need to. You know, this is a global challenge. We need to shift the global economy in a period of time, by a scale that really has only ever happened probably twice in the global economy ever. You know, the industrial revolution was the last time it happened. That was over a longer period of time than we've got to play with now. So, we absolutely need to get better happily. I think we are, but we can't rest on laurels at all at any stage.

 

11.22 - Rory Palmer, Asset TV

And Hilkka, obviously the scale of it is so important It's very pressing, but the age old question of engagement or divest always comes up. And I think it's more pertinent now than ever, but given that the time frames are now so tight, where do we go from here?

11.35 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

Part of our portfolio is invested in passive funds. You don't as such have a very easy option to divest.

And also given the scale of kind of the diversification that we have, we invest pension money, we invest into a part of the global economy. Unless the global economy transitions, the outcomes are not necessarily that much better if you think about where our pension savers who are looking to ask to help them live a good quality of life in an old age. If with impacts on climate change, it kind of comes back to the question of, even if we had divested part of the portfolio, that still impacted the economy into which they retire. Would that necessarily be a better outcome?

So we're very much in favour of engagement. I think where we are with the industry is we need a bit more realism and honesty on how much, what kinds of outcomes is engagement going to drive. We'd very much had a sense that shareholders are going to walk in and we're going to solve the climate crisis through engagement and voting. And we've very much seen that that has not been the case. It becomes hard for some of the companies once they've made the kind of low hanging fruit style changes. If there is no supporting enabling environment for transitioning, it becomes quite difficult for shareholders to force that. So, looking at other types of options, I do think we need a bit more honesty in that, but I don't think divestment is necessarily the better option. What we do see as well is brown assets being snapped up into private hands with less scrutiny, less visibility, less transparency and perhaps less urgency around the around the local carbon transition.

13.23 - Rory Palmer, Asset TV

Paul, that's a good point because when you sell an asset, it could go into a bad actors hands and then you have no control.

 

13.29 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

When you sell, you sell to someone and they clearly have a different view from you on the future and the value of that asset into the future. I think Hilkka's point about needing to invest in the real world is the crucial one to think about in this space. Even the UK, which is pretty much the most decarbonised industrial economy in the world, the climate change committee's estimations of our fuel needs for the next couple of decades show us using oil and gas for at least 10 years, more, probably a bit more than that. We can't just deny the need that the world economy has for these assets, that sector of the world economy.

In a sense, if you're divesting from them, you are denying the world's need for that. That seems a surprising decision for investors to take to my mind. I think discriminating between individual companies within sectors makes a lot more sense because there are some companies that are transitioning, have set sensible transition plans. They may waver in their delivery of those from time to time, but there are also actors within every sector that haven't even started the process and aren't making any progress at all. Those, I would suggest, are more likely candidates for divestment than sectors as a whole. I think being a bit more discriminatory in how you choose to place your bets on the future world economy is a very sensible thing for any investor to do. Of course, you invest through very different asset classes always. One of the things to think about is, in a sense, we've tended to talk so far about investments as a shareholder and your equity holdings, but you will have fixed income exposures as well. One of the key questions is, what time horizon are you willing to lend money to particular sectors of the economy, given your understanding of the climate transition that we need to have? Certainly, some of the conversations that I've had with fund managers have suggested that they're not lending to oil and gas companies beyond the next 10 years and that seems a pretty coherent, sensible, short process to our mind.

16.23 - Rory Palmer, Asset TV

Miranda, what's your thoughts on this? Divestments are a blunt tool, but where do you come at this from?

16.26 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

It depends on the client preference, because there are clients that absolutely want to divest. They don't want to have anything to do with these industries, and that's fine. There are products that will deal with that. If you are in an unconstrained fund, there will be, as Paul said, better actors that you know that with engagement and with some help and encouragement along the way, are going to work towards meeting those targets, and there are productors who, no matter what you do, are not going to change their spots. It's making that decision and balancing these decisions up against the economic outcomes that your clients are expecting.

17.02 - Rory Palmer, Asset TV

Hilkka, when it comes to voting, what are you looking to see when you hear and you talk to people? What's really key for you?

 

17.09 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

I think this goes back to the heart of the topic of asset owner and asset manager alignment. And voting being a very kind of black and white in some ways, though, I will say that this is actually a little bit more nuanced, but you will see either you supported something, or you haven't. And we find that quite a helpful tool. We’ve used something called an expression of wish, so we've identified select resolutions and formulated our own preference and how we would like our asset managers to vote, but we don't want to hold the vote. We would like them to hold the vote as kind of acting as investment managers on our behalf. We want to delegate that activity. We think that they are better resourced and better placed with better expertise to do so. So technically what we would of course want is full alignment. We think that this is something you should support. You do support that, therefore that proves value alignment. I think it is a little bit more nuanced. A lot of the industry discussion has often focused on shareholder resolution. So, shareholders coming in and filing a motion saying we think the company should be doing XYZ. We have seen an increase in the number of resolutions. We know that some of those haven't always been the best quality. There's a lot of debate on that in the industry. And where we have seen quite a few of our asset managers go in the past year or so is also looking at routine votes. So director re-elections, recording accounts, the auditors, etc, and using, thinking about those votes. If they have a concern with the company that remain unaddressed using those votes to kind of vote for their feet if you wish and demonstrate that their thinking.

 So I think just the pure focus of shareholder resolutions isn't necessarily that helpful. The other point where the votes is we would often ask if there is not alignment on how we would see a given vote. And we understand that that might be the case for many reasons. We expect the asset managers that we would like them to vote on our behalf because we think that they are, have the requisite expertise. They know the company typically very well, have a long history and a good understanding of that. If they haven't deemed a vote appropriate, I often ask, what else are you doing? Where else are you going? Or if we don't agree that there is a concern with this company, that's the point where we're misaligned. But the problem is that it's very difficult to do this on a kind of portfolio wide scale. It becomes quite manual, but I do think the nuance can be very important when we're assessing this.

19.43 - Rory Palmer, Asset TV

So Paul, what do you think about it?

 

19.45 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

So voting is a huge undertaking. There are tens of thousands of resolutions that any one asset owner will be facing, even with a relatively undiversified equity portfolio. And that means that somebody with resources and the technology and history and heritage of undertaking the voting process, needs to hold the reins on that. In most cases, that's likely to be the asset managers rather than the asset owners themselves. As Hilkka says, asset owners just don't have the resources typically to do that job themselves. So, the challenge is trying to ensure that managers are voting in closer alignment to what their clients expect. We can't imagine that clients all have the same view, though. And that's one of the challenges in all of this is, no doubt asset managers are hearing very different views from different client bases. I suspect those managers based in the US, in particular, are hearing very different views. The noise that we are all hearing from the political sphere in the US against ESG for lack of a better term, is very strong. And that will have an influence on what managers are doing.

The voices of European asset owners may well be in a very different direction, but the managers have to juggle that. But I think Hilkka's point about voting being binary is a really important one. We shouldn't get locked into a view of voting against management recommendation, either against a management resolution or in favour of the shareholder resolution. That's good. And voting in line with what management says is bad. That's not how it works. Voting is important. I've done it personally for more than a decade, and it really matters, but it only matters if it's wrapped with communication with the company. Because it's just a yes or a no, basically. It doesn't mean very much unless you explain what you intend by that vote to the company. And I think a lot of the time there is a little bit of a failure of communication in that space. And that means that really the vote on a standalone basis doesn't deliver very much and doesn't say very much.

22.39 - Rory Palmer, Asset TV

Miranda, that breakdown in communication related to voting.

22.43 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

Yes, I mean absolutely it's part of the toolbox. Voting is just one part. And that's where the danger of splitting out voting from engagement is quite dangerous, because there's no continuity in how that is communicated to the company. I have spent most of my life doing engagement and voting, and absolutely having those conversations before you're casting that vote, if it's contentious, is so valuable, and it can build so much of a relationship that you can try and help build on year and year. And this has happened over the past five or six years to the banks and their climate transition plans. You get to see the vote comes down at the end, and it'll be whichever way, but actually we spent six months engaging with these banks and trying to understand exactly what they're doing, and where their trajectory is and the different markets that they're working in and the challenges that they face, and help them shape their own resolutions to make sure that they are going to meet expectations. And if we can't, if we fail to get them to do that, then we will vote against. But most of the time we are trying to work with our investee companies to get the best outcome for them, for us, for our clients, for everyone.

23.50 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

Because it's not in anybody's interest for it to become just a head-to-head clash. You're invested in companies because you want them to succeed. And so you want to tend towards being supportive. If you have a disagreement, you need to work through that. And sometimes that needs to be reflected, that disagreement needs to be reflected in the vote. Sometimes actually it's better if it's not reflected in the vote, and you need to just understand the dialogue to actually properly understand the voting decision in each case.

24.29 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

A confrontation, going into an engagement with a confrontational stance is not the most useful. You're not going to persuade people to do things, if you are going and trying to shout at them or point fingers, trying to work with them, I found, in my experience, to be far more effective.

24.44 - Rory Palmer, Asset TV

To your point too, and Paul, and I’ll bring you back in here, the cultural divide-in all this when the US and the UK with all the political hashed in as well, that can be also pretty tough?

24.53 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

Yeah, I mean, it's I think a huge challenge for us all as an investment industry, but actually for us all as citizens, that there is this bifurcation of views and a really, an unwillingness to listen to the other side, that is increasingly pervasive in all of our relationships, and that cannot be how we all move forwards.

If we are to make progress, we need to listen to each other more effectively, to understand and to find a way forward collectively at the moment that there's in too many situations an unwillingness to do that, I think, and you know, that the investment world is just a microcosm of a broader societal challenge in that respect.

25.50 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

And I would say that voting in particular, because it is so binary, as you say, has sort of fallen victim to that whole debate. And what I would, typically the conversations we have with managers when it comes to voting is trying to understand their view of the business, because the vote should of course be reflecting that and go back to, well, what's the investment case you see around this business?

How do you, you know, why do you think that they're doing enough if you're not going to support, if you're not going to support further work on their transition plan, or if you think that their existing saying climate, their own kind of management resolution is doing enough. So what is the standard that you use to assess and try and bring it back to some kind of evidence base? Because oftentimes I feel like there's, we don't get that much context on why a vote has gone a certain way, and particularly around that kind of evidence base and benchmark they use to assess.

 

26.48 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

And I think one of the challenges for us as owners is just getting enough insight into manager voting activity to provide that sort of challenge and to find the individual cases to have a discussion. So, I mean, you know, we help clients with that, we provide some tools. And one of the forms of analysis that clients tell us is most useful is what we call contrarian votes, where we identify one of these resolutions where a significant chunk of shareholders have voted against management recommendations, but your manager hasn't. And those clients tell us are really useful examples, not to say, manager, why have you done the wrong thing, but to say, can you just explain why you're right and why that chunk of shareholders who did vote in that way, different from you, they're wrong. And those are exactly the sorts of conversations that we need to have, because if you get through that conversation and find actually the manager is aligned with your views, they're just, they've thought about it in a different way. That's wonderful. If you find they're not aligned with your views, you can encourage them to change. And that should be part of the ongoing dialogue between the asset owner and manager.

28.18 - Rory Palmer, Asset TV

And alignment would be great, but there's a lot of moving parts and alignment on everything can be that simple.

28.23 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

Yeah, and I think, you know, because voting is so binary, and because there is this pervasive attitude that seems to be growing that, as Paul said, you vote against management, that's a great thing. Or if you vote with a shareholder resolution, it's fantastic. It's a lot more nuanced than just yes or no. It really is that relationship you've built with that company, the understanding of what that company's doing, what you are encouraging them to do and helping them on that pathway, rather than, I mean, I looked at some of these shareholders or resolutions over the past year. They’ve been incredibly badly worded. There's been some very obvious anti ESG resolutions been coming out dressed up to look like they are actually proponents of ESG and in the text actually shows that they're complete opposite.

So you have to be so careful when you are doing voting to really understand each and every resolution to understand how that aligns with your belief system, how that aligns with your client's belief system, before making that final decision. It's not an easy task.

29.21 - Rory Palmer, Asset TV

In terms of split voting, where do you stand on that? What are your thoughts on that area coming through?

 

29.26 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

I think that, as I said earlier, that if you split up voting and engagement, that's not in the best interest of anybody, really, because you need that for weight behind you of the consequences of your engagement activity. So, I think that it does sit better within the asset managers. We are a better resource. We've got a lot more experience in dealing with these kind of things. And we've got the backup of the actual investment teams and the investment pieces as to why they are investing in these companies for the economic outcome that the clients are expecting. And so in general, I am much more proponent of the expressions of wish and aligning through your investment management agreement, really understanding the asset manager before you employ them. Or when you're doing your review to make sure that there is that alignment at that point, rather than trying to change it, you know, during voting season or at the end of the year.

 

30.16 - Rory Palmer, Asset TV

And Hilkka, in terms of alignment, what are you hoping to see now moving forward this season, new year? What are you looking out for?

 

30.23 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

I think that kind of bringing the entire industry having a bit more context around the voting debate in particular and bringing it back into the kind of engagement context and perhaps a bit more realism on what we can achieve through that. Very rarely will I hear from managers that they say that we chosen not to engage with this company because we don't think that we will make progress. We stopped engaging with them because we didn't, we weren't seeing the progress that we were hoping for. And what was the action that they took then? Perhaps it was full divestment. Perhaps they increased their risk scoring of that company. So just a bit more nuance and contextualization. I think that would really help. We don't often get that kind of when we look at individual votes like getting the full engagement context to explain a given vote. We don't get that too often. I think that would be extremely helpful and probably help us move away from this kind of asset owners, you know, having a very clear view and not feeling like managers supporting them on their net zero commitments. Because that is definitely the mood music within the UK asset owner industry at the moment.

31.36 - Rory Palmer, Asset TV

Paul, what do you think?

31.37 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

I mean, I think we do need to move forwards in the space. We've talked about the scale of the climate challenge. We've talked about everybody needing to move forwards. But I think we're much better if we work together than if we start to operate as if we're in opposition to each other. And that goes throughout the investment chain. We all need to move forwards effectively. I do think the challenge is an engagement challenge more than it is a voting challenge. You know, voting matters, but it's only a small portion of stewardship and we need to get back to thinking about the bigger picture, as Hilkka says, you know, what does the engagement experience teach you that you then feed into your investment process and your investment thesis, and actually, starting to see engagement, not only driving change at companies, but driving change at the fund managers as well, that's crucial.

32.51 - Rory Palmer, Asset TV

And I think stewardship is a really important point to pick up I think because we are stewards of capital in this industry, and that can't be lost in this whole debate.

32.58 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

No, absolutely. And stewardship goes straight from asset allocation all the way through to how the fund managers deal with these companies and understand their business plans and the economics of a business through to the environmental, social and governance concerns on voting. So it is a beginning to end. It is what fund managers are doing. And, you know, to be honest, that's what the stewardship code was really all about was to try and set everybody's shop front up. This is how we do it for me to z. And it feels that maybe that's losing momentum a little bit. Everybody's producing these lovely documents and they're not being read in context. And so yes, I think that is very important to understand the whole stewardship of an asset manager from beginning to end.

33.43 - Rory Palmer, Asset TV

And those documents, do you have any particular issues with those, the way they're done or the way they are produced?

 

33.48 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

The requirements, obviously, set upon us by the FRC. I mean, our own one is 70 pages long so it’s not a marketing document. Nobody in their right mind is going to pick that up and think that's really interesting, document and read it as bedtime reading.

But it should be a very useful reference document. And I think the part of the problem that we're having in this kind of misalignment is that the transparency is maybe not where it needs to be. There's a lot of calls for different data points. Various different players asking for very similar things, but they're not identical. So it's taking a lot of time to do this kind of reporting. And so I think what would be useful is if, and there is a stewardship code review coming up, that we get this decision useful information that everybody's clambering for. Agree to what its format should be and include it in there. And so that asset managers can stop spending so much time doing reporting and actually doing. And I think that everybody would find that a much more useful experience and this constant kind of chasing ones tail to report.

34.54 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

I've got some sympathy with Miranda's point, but not entire sympathy. So I mean, we do read stewardship code reports and we produce an annual analysis of them now. We put it out just about a month ago. And actually, there's some really basic data points that we think just no manager should be failing to disclose such as number of engagement actions, number of individual companies engaged with the split between ES and G of those activities, the geographical split of those activities. And there's a whole bunch more, but even those very basic ones, you cannot find consistently in every stewardship code report from a fund manager. And that just strikes us as frankly bizarre that managers are not capable of doing this reporting. I do understand we do ask managers different questions because our clients need different answers. They need answers about their own portfolio, not about the activity of a manager as a whole. And they want to focus on the companies that most matter to them.

And to our minds, that's a very valid set of questions. And therefore, we do ask managers these additional questions on behalf of clients. Frankly, if they can’t answer those just at the press of a button, they haven't got the systems in place that they ought to have. There now, you know, off the shelf products to help you report on stewardship activity. They're not very expensive, and the challenge is getting the data into them, but spend a few tens of thousands of pounds, put the data in, you can then press a button and get the activity relevant to a fund, relevant to a client over a relevant time period that hits particular themes that matter to that client. And that is to our mind a basic ask and something that every manager ought to be able to do well already, but if they can't already in the near future. And actually, if we can get to that point, then I think these stresses that they currently clearly are start to go away and we can move forwards and actually have the conversation, not about the data points, but about the substance of what's actually being delivered through the activity. The other frustration with reading stewardship code reports is people clearly mean very different things when they talk about stewardship actions. You know, there's one manager, the reports 5,312 actions in the year, another manager of a similar scale with a similar size of team reports 260 odd. You know, they are talking about very different things and we need to get towards actually a conversation about it being about the quality of engagement and the outcomes that are delivered through engagement, rather than it being a numbers game, because that's meaningless.

 

38.21 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

That's where the stewardship code could be used for those is actually coming up with that definition that's clear and these data points that are needed. And everybody knows where they stand. And you can start inputting all these things into your system, but it's when these data points change mid year, then takes you a whole year to collect it again. You know, it's very simple things that if we could all just agree on what we want, it would all run a lot more smoothly.

38.47 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

I was just going to say, I can't agree more with Paul about focusing more on the quality of the actions, rather than the actions themselves. And I think that's part of the reason where the industry feels misaligned because some manageable focus just on the actions as asset owners as the client, it's very hard to see what that has actually led to, you might get a sprinkling of a case study. That's no way representative of your portfolio. But as you say, if the basic set of metrics includes number of actions, I don't think that's going to tell me very much about how aligned I am with a given manager.

39.29 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

It has to be about quality, not quantity, absolutely.

39.34 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

I think we're quite far away from being able to have that kind of information available across the industry. And that's certainly a direction that would be very beneficial for us when we're trying to understand how well we're aligned with our managers.

39.45 - Rory Palmer, Asset TV

Everything getting lost in the data points. I do hate to do this, but we are running out of time. I'll just quickly ask you all for your outlook and moving forward. Misalignment is there, but are you quite optimistic about how we're moving and the pace we're moving forward at as well?

40.01 - Hilkka Komulainen, Head of Responsible Investment, Aegon UK

I think we're building understanding which is important. I think it's important Miranda at the start of the conversation alluded to the fact that the asset owners are starting to have their own view and ask their own questions. That's definitely a trend that we've seen in the market. And that's certainly shifting the kind of dialogue that we're having with our managers. They are listening to the kinds of things that we want to have, the information we want to see, the kind of reporting that would be useful for us. So I think that direction we have to have confidence in that direction. We have to continue to search for the best way to mitigate climate risks and other sustainability risks in our portfolios. And as asset owners, we're completely reliant on managers for that activity. So you have to keep going.

40.46 - Rory Palmer, Asset TV

Paul, you are the optimist.

40.48 - Paul Lee, Head of Stewardship and Sustainable Investment Strategy, Redington

I remain an optimist. I think the conversation is now happening in the right place. And that's really helpful. I think we need to work together and make progress together. We as an industry need to do that. The world needs us to do that. The climate is a demanding challenge over a short period of time. We're not going to make progress unless we align and think in an aligned way. That's only going to happen through ongoing communication. We're having that communication and dialogue in the right place now. But that needs to have an outcome.

41.31 - Rory Palmer, Asset TV

Miranda, is it going quickly enough for you?

41.33 - Miranda Beacham, Head of Responsible Investment, Aegon Asset Management UK

Well, I think when I look at it, Paul and I have been around for quite a while. We were around kind of near the beginning of when ESG engagement became a thing and some of the conversations you'd had with companies over 20 years ago. There was that degree of friction because nobody really knew where they stand or where the power was, etc. And I think that's what's happening now.  The owners and the asset managers, there's that kind of slight degree of friction. And I do believe that in time, you'll learn how to communicate better, what levers you can pull.  And I think that it will align.  Whether it's quickly enough, I don't know. Obviously climate change is such a huge issue that we need to get hold of quite quickly.  But I do believe there's enough people wanting it to improve. It will improve.

42.15 - Rory Palmer, Asset TV

Well, that is all we have time for. Thank you to my palace to Hilkka, to Paul and Miranda. Thank you very much for watching.  And we'll see you here on Asset TV next time.