Aviva’s Investments, Wealth and Retirement business and Aviva Investors are working together to deliver financial and sustainable outcomes, connecting clients to their capital.
Read this article to understand:
- How the partners align their stewardship interests
- The challenges they face in aligning on stewardship
- How collaboration helps resolve those challenges and achieve better outcomes
Stewardship is a core investment process, aimed at creating long-term sustainable value for clients and beneficiaries. It includes the responsible allocation, management and oversight of capital, and incorporates engagement and voting activities.
Successful stewardship requires collaboration across the value chain, including asset owners – the capital allocators, who act on behalf of end clients – and asset managers – the agents of asset owners, whose role is to deliver the objectives outlined in mandates.
But the environment is pulling asset owners and asset managers in different directions, and aligning their stewardship goals can be challenging. For example, views of materiality and time horizons can differ. Despite this, stewardship remains paramount to deliver long-term value to customers.
To find out more, AIQ spoke to Darren Roberts (DR), sustainable investing lead at Aviva’s Investment, Wealth and Retirement business – the asset owner – and Richard Butters (RB), head of stewardship within Aviva Investors’ public markets ESG team – the asset manager.
Q: What are the individual roles and responsibilities of an asset owner and asset manager where stewardship is concerned?
DR: In general terms, asset managers engage with investee companies, while asset owners engage with their asset managers. Across our asset managers, we look at their alignment with our goals in terms of their voting and engagement policies. We also monitor the alignment of their activity with their stated policies.
Asset managers know the companies – and the questions to ask them. So we don’t think asset owners should dictate their engagement and voting activity. But we need to be aligned on the stewardship themes. We also need our asset managers to deliver meaningful reporting and evidence of their activity.
RB: Asset owners are the driving force behind our investments. Our role is primarily to research businesses, shape investment decisions and influence companies to create value for our clients. But it is also to represent asset owner interests and be a bridge with investee companies.
Q: What does a typical year look like for you both in terms of stewardship?
RB: It’s an ongoing cycle that ebbs and flows with the markets and client interests, and generally involves long-term and ongoing dialogue. We typically hold regular discussions with asset owners ahead of the calendar year. We then engage with companies, using insights to inform our approaches at annual general meetings (AGMs).
After voting season, which is roughly in July, we reconvene with Aviva and other asset owners to discuss the lessons learnt and start thinking about the themes and voting intentions for the following year, and how to improve the client experience.
DR: These can be included in service-level agreements, but we generally prefer to have an open dialogue with Aviva Investors and our other asset managers on core themes, and on their voting and engagement policy. We find that’s the best way to align on our philosophy. We can voice our opinion and feedback on the year’s stewardship.
Q: What are some of the key challenges in aligning on stewardship between asset owners and managers?
DR: Our voting and engagement requirements are rooted in the need to address systemic risk. We also expect asset managers to engage with companies to support systemic change. That can be challenging, as what matters over the long term may not always align with a company’s shorter-term interests. We therefore need to work with our asset managers to strike the right balance.
We can also join forces to increase our voice and influence policy. For example, when we publish our Low-carbon policy roadmaps, we do this together in an approach we call “one Aviva”.1 This is important, because policy decisions can impact how profitable it is for companies to make their business models more sustainable.
RB: Indeed, we both benefit from belonging to the broader Aviva group, which has a clear vision and supporting capabilities like its public policy teams. We can also provide a bridge between corporate and policy engagement, helping shape the “rules of the game”.
One challenge we often see in relationships is reconciling the trade-offs between sustainability and risk-and-return objectives. We combine our investment and stewardship expertise to walk asset owners through these dynamics, and provide assurance on the decisions we make on their behalf.
Another challenge is that we represent more and more clients, who often have different preferences. Dialogue and transparency help us meet their needs, but that requires time and resources. We would like to see more alignment in reporting requests, to free us to focus on where we can deliver the best value.
DR: Reporting is a challenge on the asset owner side as well. Every year, our managers engage multiple times with thousands of companies. Engagement is also qualitative and often nuanced. How do you get meaningful evidence of stewardship activity across such a large piece of work? That’s where dialogue is so beneficial.
Q: How do you overcome the challenge of reporting? Is there a role for pass-through voting, where asset managers use votes in proportion to the various views of their asset owners?
DR: Reporting is most useful when it is grounded in a shared stewardship philosophy. We look for evidence that our managers have clear objectives, a consistent process, appropriate resources, and transparent escalation routes. We also limit the number of asset managers we work with, so if there is an inconsistency between them, we can look into it.
We see pass-through voting as being useful in specific circumstances, and we have used it to align our voting more closely with the stewardship activity of our internal manager, and therefore with our own priorities. But it is not a substitute for strong stewardship by the asset manager. Voting decisions still need to be informed by company engagement, research and escalation over time.
For us, the priority is ensuring there is strong philosophical alignment, transparency and accountability with our managers, so that voting forms part of a coherent stewardship approach rather than a standalone decision.
RB: We can explore pass-through voting if clients prefer it, but asset owners should ask themselves how comfortable they are if their manager can take multiple views on the same issue.
I’d also argue that, for voting to be effective, it needs to be complemented by engagement, which asset managers can support at scale.
Q: Darren, in addition to reporting, is there anything you’d like to see more of from your asset managers?
DR: Most importantly, I’d like to see more asset managers thinking at the systemic level, like Aviva Investors, and engaging with industry groups and policymakers.
Overall, I’d like to explore more ways to engage together and with the wider market. Understanding the interactions between asset managers and investee companies would be invaluable, as it would give us deeper insights into how engagement objectives are set, challenged and progressed in practice.
Q: Richard, how do you see relations between asset owners and asset managers evolving?
RB: Many of the longer-term systemic challenges Darren highlighted can be too difficult for asset managers to tackle alone. Greater collaboration could deepen our insights, amplify our voices and ensure greater consistency in our messaging. My hope is this would demonstrate our alignment more clearly, to enable long-term value creation.
