Why investment stewardship matters to your clients

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.”

Global reach

When it comes to applying investment stewardship within its own fund ranges, BlackRock does not just talk the talk – it also walks the walk.

Christie says that in 2021, BlackRock clocked up more than 3,500 engagements with companies, and voted at a total of 17,000 AGMs, on over 164,000 proposals.

To achieve this level of engagement at scale, BlackRock’s 70-strong investment stewardship team operates in more than 30 countries and 70 cities across the Americas, Europe, the Middle East, Africa and Asia-Pacific, combining the benefits of its global reach with local knowledge, service and relationships.

“Having not only a team with wide coverage, but also deep coverage means we can stay engaged with companies all year round, not just during peak proxy season,” says Isaza. “And it means we can stay informed about emerging trends and policy developments, globally.”

Stewardship of index holdings

BlackRock’s stewardship approach is consistent across its funds, active and index, which might come as a surprise to some advisers and their clients.

“Often, the perception is that index fund managers can’t do much or are ‘sleepy’. But that couldn’t be further from the truth,” according to Christie.

Take BlackRock’s MyMap range, a series of UK-domiciled, daily-dealing multi-asset funds, investing in a diversified portfolio of iShares ETFs and index funds that have a three-year track record. This “one stop shop” for financial advisers was expanded in March this year.

“We launched two new ESG funds, the MyMap 3 Select ESG and MyMap 7 Select ESG. They joined the MyMap 5 Select ESG, so we have a mini range of ESG funds now within MyMap, all at the same 17 basis points price point as the core fund range,” explains Christie.

“You’re not paying more for ESG – we don’t think you should. In addition to sitting within the same risk band as their core non-ESG funds, they also have a specific carbon reduction target.

“Because the range invests in all of our ETF and index funds, they get the full benefit of the investment stewardship team – all of the voting they do and all of their engagement activity.”

In an industry teeming with jargon and acronyms, Christie believes there’s an opportunity for asset managers to remove complexity from the sustainability conversation.

“As we bring more simplicity to the ESG conversation, which the MyMap funds do, that will help advisers make sense of all this for their clients as well.”

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