Dr Alexander Juschus, CEO of the Association of Stewardship Professionals, outlines the importance of filling the stewardship skills gap to drive sustainable outcomes.
While its roots may be longer, stewardship is synonymous today with sustainable investing. But the activity is still an emerging discipline and, particularly around ESG-related themes, relatively loosely defined. There is also growing demand for education for stewardship professionals, with asset owners and managers looking to develop their in-house stewardship programmes to actively engage with investee firms to drive sustainable outcomes and long-term returns on investment.
To address these issues and meet market demand, the Association of Stewardship Professionals (StePs) was conceived as a member-driven, not-for-profit organisation dedicated to the advancement of the investment stewardship profession. At the heart of the organisation is its Certified Stewardship Professional (CSP) accreditation, which is set to launch on 30 November.
“The intention of the CSP accreditation is not to offer a diploma solely for participation in a course, but rather to administer a proper test to ensure that individuals have truly learned and understood the material,” Dr Alexander Juschus, CEO of the Association of Stewardship Professionals, tells ESG Investor, adding that testing will be conducted by an independent organisation.
The CSP curriculum will be divided into five pillars: stewardship fundamentals, stewardship tools, skills and techniques, stewardship and ESG: themes, assets and outcomes, reporting, assessment and transparency, and country-specific modules. In total, the course will take roughly three to four months to complete, with approximately 66 hours of courses, including live sessions and case studies.
“The first pillar covers the fundamentals that everyone needs to know, the second pillar takes a more practical approach, focusing on tools, skills, and techniques, including engagement and proxy voting meetings,” he said.
“The third pillar deals with how to develop stewardship guidelines and implement them, with the fourth pillar focusing on financial and non-financial reporting and how to report that information to stakeholders, as well as covering practical issues such as greenwashing. Finally, the fifth pillar is country-specific, dealing with issues unique to different countries.”
Filling the knowledge gap
Prior to establishing StePs, Juschus had worked with proxy advisors, including International Shareholder Services (ISS) and Glass Lewis for around 18 years. He notes that these organisations would occasionally hire employees to help carry out analysis and relevant research ahead of the upcoming AGM season, adding that limited experience was not necessarily a barrier.
“Often enough, we were happy if they knew what a share or a general meeting was,” he said. “From that limited knowledge base, we then had to take them to a position where they could write a complete governance analysis paper.”
To make matters worse, after investing significant time and resource in training up these employees, other organisations would frequently poach staff members due to ESG-related skills shortages creating a fiercely competitive talent market.
According to Juschus, many organisations may wait over a year to find suitable candidate with relevant stewardship and ESG-related knowledge, crystalising in his mind the need for a more rationalised approach to relevant training and development.
In response, StePs conducted a survey to determine if there was a market for stewardship, reaching out to around 100 institutional investors, including Sweden’s public pensions fund AP1, European asset manager Legal General Investment Management, and US-based PGIM among others.
“Over 80% of those who responded said there was a necessity for such an association, with many respondents saying they would be willing to send team members to attend the accreditation programme,” he said. “This feedback was sufficient for us to conclude that there was indeed a market.”
Juschus says that the level of stewardship expertise is limited in some jurisdictions, citing Germany and Belgium, where there is not significant pressure from pension funds to use good stewardship practices or proxy voting guidelines.
In Germany, the DVFA Stewardship Guidelines provide asset managers with guidance on how stewardship should be understood and implemented, but these are not binding. The Belgian Corporate Governance Code provides guidelines and recommendations for listed companies and their institutional investors to promote good governance practices, including stewardship responsibilities. It covers various topics such as the composition of the board of directors, risk management, remuneration, and shareholder rights. However, it is also not legally binding, with companies expected to comply with its provisions or explain their non-compliance in their annual reports.
“When speaking to pension funds in Germany and Belgium, their expertise in this area was found to be very limited, and they were not willing to talk about it,” he says, noting that the opposite is true in countries like the Netherlands and the UK.
“Asset owners in Germany and Belgium were basically following the asset managers’ lead on stewardship, as there is not much pressure applied on them to exert influence,” he said. “It is not accurate to say that this is frustrating, but it is certainly challenging.”
In the past, the lack of a stewardship code in Germany led to a “patchwork” approach being applied by some institutional investors, according to Juschus, noting that there was often no dedicated point of contact for discussing stewardship activities.
Measured approach to stewardship
Elsewhere in Europe, the approach has evolved significantly, with regulators, particularly in the UK, working to improve engagement by more closely aligning stewardship with corporate governance to build trust between asset owners and investee firms.
The UK Stewardship Code was first launched in 2010 by the Financial Reporting Council and was subsequently revised and updated in in 2012, 2014, and 2020. The latest version of the code places a greater emphasis on ESG issues, as well as on the role of investors in promoting sustainable and responsible investment practices. The code is voluntary, but many institutional investors have signed up to it as a way of demonstrating their commitment to responsible investment. Another review of the UK Stewardship Code is set to take place in Q3 2023.
However, asset owners’ in-house stewardship programmes must continue to evolve if they are to engage with investee firms effectively on climate and other ESG-related themes, says Juschus.
“If you look at the large institutional investors, where they are invested in 7,000 companies, and even have a relatively large stewardship team of between 10 to 15 people, many are not even able to engage with 10% of those investee firms,” he says, noting the importance of having a well-organised team in order to cover even just for a small percentage of an investment institution’s complete holdings.
And while asset managers have built out their own capabilities significantly to help asset owners handle the engagement and escalation process, Juschus says that it is important that investors develop a direct, hands-on approach to stewardship to safeguard their reputation and long-term sustainable returns.