Enjoy this interview with Susheela Peres da Costa and Esgaia's Head of Stewardship Success, Rickard Nilsson, where Susheela shares important perspectives on the progress of investment stewardship, and where we need to go next.
Q: Working in the nexus of sustainability, investment stewardship and corporate governance, you will have experienced some of the tensions between diversified investors and individual corporates, how do we bridge the structural differences?
Shareholders are typically well-diversified. One of the things we need is clarity that directors’ obligations to shareholders are not to the shareholding per se. The Shareholder Commons, for instance, argues (in its Delaware court case) that when Meta directors opt to optimise profits and ignore the externalised harms caused by that profit-seeking, this harms Meta’s diversified shareholders.
Shareholders can address this by electing directors who are willing to exercise ethical restraint with respect to the company’s impacts and externalities. There is an obvious role for proxy voting agencies and others who can provide data points attesting to these qualities in board candidates.
We also need to reconsider elements of conventional governance practice that may not be serving us well - for example, “motivating” executives by basing their remuneration on the company’s relative TSR (total shareholder return) rewards them for undermining the performance of other companies.
Q: Following on above, given how many issues are systemic or systematic in nature, do you think investor stewardship (as currently practiced) is too focused on individual company engagement and performance?
Very much so, and this myopia limits its effectiveness. Part of the problem is that many institutional investors are incentivised to focus on relative (rather than absolute) investment performance - even many of those traditionally described as “asset owners.”
Q: What changes have you seen in investment stewardship and corporate governance over time?
The largest change is its popularisation. When I began this work, most companies prioritised the asset managers who attended their briefings, and largely ignored the institutional investors whose assets they were managing. In some cases, becoming aware of these investors' and their interests sufficed to bring about change. That’s no longer the case. When it went mainstream, companies became better resourced for and more practiced at “managing” investors like any other stakeholder. This makes the quality and content of stewardship much more important.
Q: Let’s bring in the geographical perspective, what’s your view on balancing global vs local (/regional) in terms of standards and guidance? And, how should investment stewardship professionals think about this as they look to influence investees and markets more broadly?
I advise being crystal clear about the question or problem that needs to be addressed before trying to address it or encoding the (assumed) solution in standards and guidelines. I confess to being flummoxed as to why anyone skips this step!
Stewardship professionals should really interrogate the intentions they bring to engagement. For example, calls for corporate disclosure are more useful - and more effective - if based on a well-founded view about who should be doing something differently, precisely what information would cause them to make this change, and what prevents them seeking out that information now? You need strong insights into the status quo to generate a robust theory of change.
Q: What about balancing the level of prescriptiveness in guidance with differences in investor stewardship maturity levels? Any takeaways for investors here?
My ideal is not necessarily one where all investors undertake stewardship, but one where all investors are frank and transparent about what (if any) stewardship they undertake, and their clients differentiate them accordingly. We shouldn’t be encouraging tokenistic activity.
Q: Ending this interview with another trip in the time machine, António Guterres, the Secretary-General of the UN, recently noted how “our world is entering an age of chaos”, from a stewardship perspective then, what can investors do to strengthen multilateralism, cooperation, and inclusion?
Seek credible feedback from unconventional sources to help Identify which (if any) current actions or omissions undermine multilateralism, co-operation and inclusion. Start there.
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Susheela is a Principal at the Stewardship Centre, and a director on the boards of the Nature Conservation Council of NSW, Beyond Zero Emissions, and US-based think tank, The Shareholder Commons. She was chair / deputy chair of RIAA from 2012-2022.
She has been engaging financial institutions and corporates on responsible investment and sustainable business practices, governance, strategy, and implementation since 2006. Her advise extends to some of the world’s largest banks, pension funds, wealth advisers and asset managers.