Historically, advisers have selected active and index funds for their clients’ portfolios with a view to meeting their financial goals, like retirement or saving to buy property.
But increasingly, advisers’ clients demand to know how their investments generate returns.
Do they want their later years funded at the expense of the world’s ecosystem? Can they, in good conscience, accumulate capital by being invested in companies with a lack of diversity at the top?
What is at stake?
Heather Christie, head of the adviser and platform sales team at BlackRock, says there have been many instances of poor governance and deficient stewardship resulting in a cost for investors. One example is the Global Financial Crisis of 2007-08, in part triggered by a lack of checks and balances on management teams and particular individuals at the banks.
“Ultimately, it can end in significant operating events, a lack of investor confidence and values destroyed, outside of any environmental impact, community destruction and poor labour practices,” Christie explains.
“Previously, the end investor – whether it was in a pension or in a general investment account – wasn’t as attuned to engaging in their investments. Now, we’re seeing more investors engaged in what the companies they’re invested in are doing.”
Having a voice
Among the stewardship issues that matter to UK advisers and their clients are climate change and climate transition, board diversity, executive remuneration, animal welfare, and gender parity.
These are all worthy issues, but the process of monitoring and holding investee companies to account in relation to these hot topics can be complex and challenging.
However, at its heart, investment stewardship has a simple aim.
“At BlackRock, investment stewardship is the process by which we use our voice on behalf of our clients to promote sound corporate governance and sustainable business models, at the companies we invest in, on their behalf,” says Manuel Isaza, director, global lead product strategist for BlackRock's Investment Stewardship (BIS) team.
BlackRock does this by engaging with company boards and management teams, voting on clients’ behalf, where authorised, at shareholder meetings, and contributing to the advancement of corporate governance standards and policies through public dialogue and thought leadership, says Isaza.
It is “not about telling companies what to do”, he explains, but rather ensuring they have the appropriate governance structures in place to serve the interests of long-term shareholders.
“It comes down to having a long-term focus, while also accounting for any changes in the macro-environment that may have significant ramifications for business performance. For example, the Covid-19 pandemic has put a spotlight on social issues, particularly the relationship between companies and their employees,” Isaza adds.
“Board diversity has been a long-standing engagement priority for BlackRock’s investment stewardship team. In fact, it continues to be one of the top reasons we would vote against the re-election of a board director.”
When it comes to applying investment stewardship within its own fund ranges, BlackRock does not just talk the talk – it also walks the walk.