Investing Q&A: Stewardship and active ownership – what is it and why does it matter?

If you’ve got a KiwiSaver account, or invest in a managed fund, you might be wondering how your investment provider is investing responsibly, as well as helping to grow your investments. Stewardship is a key part of responsible investing and involves an active dialogue with companies in the portfolio, with a goal of making the world a better place. We sat down with Sue Walker, Senior Manager for Responsible Investing to find out more.

What do we mean when we talk about stewardship?

Stewardship is about accountability and taking responsibility for protecting assets over time. It’s careful and responsible management – to nurture, protect, and preserve for future generations. This is embedded in the BNZ sustainability strategy, which is built around two key pillars: Kaitiakitanga or protecting and conserving the natural environment, and Manaakitanga or caring for people and communities.

The Aotearoa New Zealand Stewardship Code published in 2022 is an industry-led code that supports strong stewardship practice in New Zealand and is designed to bring transparency and accountability to the practice of stewardship. BNZ was a founding signatory of the code.

Stewardship is also referred to as active ownership and is a central concept in responsible investing. It includes:

• the creation and preservation of long-term value
• operating in the best interests of investors, and;
• contributing to sustainable outcomes for the environment, society and the economy.

What are some examples of good stewardship in practice?

Good stewardship focuses on material issues within the investment portfolio. It involves targeted engagement with a clear agenda that talks about the potential issues or opportunities for the company, over the long term.

One of the most significant and pressing issues that we face is climate change. We need to find ways to reduce fossil fuel reliance and transition to a low-carbon economy. For an investment provider, a starting point for good stewardship on this issue, could be ensuring that companies within the portfolio are disclosing greenhouse gas emissions.

The next step could involve the investment provider (or their underlying managers) engaging with companies in the portfolio to ensure they work to decarbonise their operations and align to a net zero pathway. And from there, monitoring and measuring progress to ensure companies across the portfolio transition to low emission, resilient business models.

By choosing a provider that is committed to net zero, investors can ensure that their money is invested in a way that helps to create a more sustainable future. To learn more about how investment portfolios are transitioning to net zero emissions, see our article on net zero, and what this means for investors.

What are some of the key topics when it comes to stewardship?

There are a range of issues across environmental, social and governance factors, but some of the key topics are:

• climate change and transitioning to a net zero future
• human rights and modern slavery
• diversity, including diversity of boards.
• nature, biodiversity and conservation.

What are some of the big picture changes you’re seeing in terms of stewardship and the responsible investing landscape? 

One of the big changes in responsible investing is the shift from an approach that emphasises divestment (or selling) certain companies and sectors, to one that focuses on engagement and transition. Excluding companies is sometimes necessary and can be a good starting point. However, it’s important to remember that simply selling an investment in a company or avoiding them altogether is not always the best option. Staying invested and working with a company to effect change, using levers such as voting, open letters and collaboration is how we’ll get outcomes that benefit all of us.

What are the key tools used in stewardship and active ownership, to drive change?

The main tools used in this process are:

• engagement – developing a meaningful dialogue with companies to understand their business strategy, their ability to adapt and sustain their business over the long term and ensuring a strong governance structure is in place.
• voting – exercising voting rights in line with their investment policies and guidelines.
• collaboration – working with investors, policy makers and other key stakeholders to influence positive change on ESG related issues.

How does voting and proxy voting fit into this?

Voting is a way of using the collective power of our investors to have a say in the future direction of the company. At BNZ, this is done by our underlying managers, who exercise voting on our behalf. Voting is an active ownership tool. It includes matters such as electing directors to the board, remuneration, and company disclosures. This is all part of responsible investing and an effective way of driving change towards a more sustainable future.

Any views expressed in this article are the personal views the author and do not necessarily represent the views of BNZ, or its related entities. This  article  is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser.

Neither Bank of New Zealand nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any, information, representation or omission, whether negligent or otherwise, contained in this article.

BNZ Investment Services Limited, a wholly owned subsidiary of Bank of New Zealand, is the issuer and manager of YouWealth and the BNZ KiwiSaver Scheme. Product Disclosure Statements for both products are available at bnz.co.nz Investments in the BNZ KiwiSaver Scheme and YouWealth are not bank deposits or other liabilities of Bank of New Zealand (BNZ) or any other member of the National Australia Bank Limited group. They are subject to investment risk, possible delays in repayment, possible loss of income and possible loss of principal invested. No person (including the New Zealand Government) guarantees (either fully or in part) the performance or returns of the BNZ KiwiSaver Scheme and YouWealth or the repayment of capital. National Australia Bank Limited, the ultimate owner of BNZ, is not a registered bank in New Zealand but a licensed bank in Australia and is not authorised to offer the products referred to in this email to customers in New Zealand.