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The essence of ESG stewardship in asset management: how engagement and proxy voting drive sustainable value

The essence of ESG stewardship in asset management
| Inside Institutional, Sustainable Investing

Kuhle Sojola, ESG Engagement Specialist at Sanlam Investment Group, highlights how active engagement and proxy voting in ESG stewardship can enhance governance and drive sustainable, long-term value for both investors and society.

Environmental, Social and Governance (ESG) stewardship is central to responsible asset management. Through active engagement and proxy voting, it drives sustainable change, strengthens governance and delivers long-term value for investors and society.

The role of ESG in asset management

Asset managers increasingly recognise that companies with strong ESG practices are better equipped to navigate risks and seize opportunities. This realisation has resulted in the integration of ESG factors into portfolio management as a critical component of financial analysis.  ESG stewardship strengthens long-term returns for clients by improving ESG performance.

Sanlam Investment Group CEO, Carl Roothman, says, “Sustainable investing is evolving to encourage investors to move beyond traditional ESG considerations and focus more on impact investing. Currently, asset allocation towards these types of investments is lacking. We need these investments to address the most pressing issues on the continent today — access to clean energy, resilient infrastructure development, economic diversification, and climate change.”

Driving sustainable practices through engagement

Encouraging companies to adopt sustainable practices helps asset managers mitigate risks related to environmental degradation, social instability and governance failure. For instance, companies that proactively manage their carbon footprint are less likely to face regulatory penalties or reputational harm, which in turn protects the value of the assets under management. The emphasis is not just on avoiding harm; it’s on proactively doing good. South Africa is primed for proactive responsible investing strategies that will reap robust social and financial returns.

The financial implications of environmental risks were starkly highlighted by the 2022 floods in KwaZulu-Natal. The devastating impact of these floods on local businesses and infrastructure highlighted the vulnerability of companies unprepared for climate-related events. Asset managers who prioritise ESG considerations are better positioned to identify such risks and engage with companies to bolster their resilience.

Strengthening corporate governance through stewardship

Stewardship in asset management also plays a crucial role in reinforcing corporate governance. Effective governance ensures that companies communicate transparently with all stakeholders, not just shareholders.

Through active engagement and proxy voting, asset managers can advocate for governance reforms that lead to better decision-making and oversight. This might include pushing for greater board diversity, aligning executive remuneration with long-term performance or demanding more rigorous disclosure of ESG risks.

The future of ESG stewardship in asset management

As ESG factors become increasingly integrated into the fabric of the asset management industry, the role of stewardship will only grow in importance. Asset managers are no longer passive custodians of capital. They are active participants in shaping the future of the companies in which they invest. This shift reflects a broader understanding that long-term value creation is inextricably linked to the well-being of society and the planet.

In essence, stewardship in asset management is not just about protecting investments – it’s about shaping a better world, one engagement at a time.

 

 

 

Disclaimer: Sanlam Investments consists of authorised financial services providers in terms of FAIS and disclaimers can be viewed on www.sanlaminvestments.com.

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