Insights
Managing long-term risks with stewardship
It is well established in scientific research that climate change creates system-level risks affecting both the environment and people1, with natural catastrophes and climate change ranked amongst the top business risks2.
These risks, such as more frequent and severe extreme weather events, translate into real economic losses, with inaction projected to cost the global economy up to US$38 trillion by 20503. Evidence also shows that companies directly exposed to natural disasters can experience sustained underperformance relative to peers, reflecting the financial toll of physical climate risks4. For five years in a row, insured catastrophe losses have exceeded US$100 billion5.
Why does this matter?
Environmental risks directly affect long-term financial returns and business resilience.
There is no profit without people or planet. Businesses do not operate in isolation, and long-term financial returns rely on stable environmental and social foundations. In this context, environmental risks are financial risks that must be understood and managed.
What is stewardship when it comes to investment?
In short, investment stewardship is how investors actively influence company behaviour to protect long-term value.
Investment stewardship6 is the practice of influencing how invested assets are managed through engagement and voting. This applies at the company, fund, and investment manager level, and involves ongoing dialogue with leadership alongside the responsible use of voting rights held on our clients’ behalf.
We believe stewardship plays a critical role in safeguarding the value of our clients’ investments by influencing companies’ environmental, social and governance practices, encouraging them to become leaders within their sector.
What does research say about stewardship?
Research shows that effective stewardship strengthens long-term company resilience and performance.
Studies indicate that effective stewardship is one of the most powerful ways to ensure the long-term resilience of companies7. This is because owning companies’ shares comes with the right to make your voice heard by engaging and voting to encourage good corporate practices, aiming for resilient financial returns and positive outcomes for people and the planet.
How are engagement and voting used together?
Engagement and voting are complementary tools, with voting typically used as an escalation mechanism.
What happens before and after a vote is just as important as the vote itself. Asset managers tend to use voting as an escalation tool when engagement has failed, prioritising collaboration with company management over confrontation.
As a result, voting against management or in favour of an environmental or social (E&S) resolution is more nuanced than it may appear, and asset manager support for such resolutions should be interpreted with care when assessing stewardship effectiveness.
How can investors tell which votes are meaningful?
The significance of a shareholder vote depends on context, materiality and prior engagement.
Shareholder resolutions are proposals that groups of investors submit to a company asking its board or management to take a specific action. Shareholders can then choose to vote for, against, or to abstain.
Resolutions are not equally relevant for each company, and the following criteria help assessing their importance. A well-constructed shareholder resolution should be financially material, reasonable in scope, and additive to existing dialogue. It should also consider the company’s performance on the topic relative to its peers.
Such resolutions tend to emerge when prior engagement efforts have failed.
How does stewardship compare to excluding the ‘bad’ sectors?
Stewardship is generally more effective than divestment at influencing real-world corporate behaviour.
Divestment from sectors such as fossil fuels or weapons is a common sustainable investing approach. However, evidence suggests it rarely drives meaningful change in corporate behaviour, as the market impact is often limited.
In practice, the largest asset managers hold an outsized share of global assets yet often apply weak sustainability standards. This is why research increasingly highlights stewardship as the more effective lever for change. While stewardship faces the same concentration of ownership, its impact can scale further because public visibility amplifies pressure on companies, magnifying the influence of investor action.
Does stewardship involve uninvesting from companies?
Divestment is used sparingly within stewardship and typically only as a last resort.
With stewardship strategies, divestment remains rare as both companies and asset managers prefer to continue engagement wherever possible. Still, the threat of divestment is real and used as a last resort, typically in cases of persistent unresponsiveness or serious breaches of conduct.
What are the shortcomings of stewardship?
Stewardship is resource-intensive, incremental and difficult to measure with precision.
Effective stewardship requires sustained engagement over time, which can make progress slow and outcomes difficult to attribute directly. Improvements in corporate behaviour may also be influenced by regulation, market forces or the actions of other investors.
Despite these limitations, trends over time can be observed. Our investment managers track progress across stewardship themes using a combination of quantitative metrics and qualitative assessment aligned with their stewardship strategy.
For example, EQ Investors assessed 12 asset managers on their approach to banks’ climate policies. This KPI graph highlights how consistent engagement helps raise awareness amongst asset managers about the pivotal role banks play in financing the climate transition.
Source: EQ Positive Impact Report 2025
Are there notable examples of the effectiveness of stewardship?
Asset owners are increasingly holding asset managers accountable for stewardship outcomes.
Stewardship is gaining real momentum and some of the largest asset managers are being held to account for their poor practices.
Recent examples highlight this shift:
- Leading UK pension fund The People’s pension pulled out £28 billion from State Street over concerns of poor voting records and an ESG retreat;
- Dutch pension fund PFZW pulled out US$17 billion from BlackRock also due to ESG pullback.
Want to learn more about stewardship? Get in touch
[1] unepfi.org
[3] cdp.net
[4] msci.com
[6] The Principles for Responsible Investment (UNPRI), a United Nations-led international network of financial institutions, defines stewardship as ‘the use of investor rights and influence to protect and enhance overall long-term value for clients and beneficiaries, including the common economic, social and environmental assets on which their interests depend.’ Source: unpri.org
[7] Kölbel, J. F., Heeb, F., Paetzold, F., & Busch, T. (2023). Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact. Organization & Environment, 33(4), 554–574. Source: doi.org.
RISK WARNING
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.