Is There a Difference Between How US and European Investors Approach Stewardship?

AQTION leveraged its proprietary database powered by SquareWell Partners to assess whether there were differences in how 25 US investors and 21 European investors steward their portfolio companies, including how they evaluate environmental, social and governance (“ESG”) issues and shareholder activism. Some of the findings from the study are detailed below.

1. Stewardship Practices

Recent years have seen the world’s largest investors form dedicated stewardship teams to oversee discussions with portfolio companies on “ESG” issues. AQTION found that stewardship teams are relatively commonplace across both European and US investors, with 43 of the 46 (roughly 93%) analysed having established a dedicated stewardship team to implement their voting guidelines and engage with companies on a wide range of topics (Figure 1).

Figure 1. Percentage of US and European Investors with a Dedicated Stewardship Team.

AQTION further analysed the decision-making process at investors when evaluating a company’s general meeting agenda and instructing their final voting decision. Forty-three of the 46 investors across both the US and European groups had a stewardship team either as the standalone decision maker or joint-decision maker with a portfolio/fund manager. Interestingly, AQTION notes that European investors favour stewardship teams to make decisions with the input of the fund manager significantly more than the US group (Figure 2), bridging a bit the gap between “values” and “value”.

Figure 2. The Percentage Split between Decision-Makers Amongst US and European Investors.

Discrepancies were also uncovered between the US and European investors by AQTION when assesing the disclosure of voting guidelines, in particular disclosure of “country-specific” voting guidelines. Forty-eight percent of US investors disclose a country-specific voting policy, whereas only 5% of the European investors do so (Figure 3). 

Figure 3. The Percentage of Investors Between the US and Europe that Disclose Regional/Country-specific Voting Guidelines.

2. Expectations on "ESG" Topics

AQTION analyzed potentially differing views between the US and European on select “ESG” topics. In particular, the study uncovered divergences on certain governance topics, most notably on the evaluation of CEO/Board Chairs in which European asset managers were found to oppose the combined roles more consistently (Figure 4).

Figure 4. How US and European Investors View Combined Chair/CEO Roles

3. Engagement Efforts and Transparency

AQTION notes that 42 of the 46 investors publish stewardship reports.

This sheds light onto their position on certain topics but also what they may be focusing on in their engagements with portfolio companies. Both US and European contingents publish stewardship reports in (near) equal weightings (Figure 5).

Figure 5. The Percentage of Investors in the US and Europe that Publish Stewardship Reports

4. Participation in Initiatives

AQTION notes that initiatives focused on the environmental tenet of “ESG” have seen a much stronger endorsement by European investors.

On the standardization of “ESG” disclosures, AQTION notes that 41 of the 46 investors have publicly supported the Task Force on Climate-related Financial Disclosures (TCFD) – which is going to be incorporated and overseen by the International Sustainability Standards Board (ISSB) going forward. However, only 15 of the 46 investors have officially supported the CDP Science-Based Targets (SBTi) campaign which encourages the adoption of science-based emission targets. Of these 15 investors in support of CDP, only two are from the US, demonstrating a disparity of alignment in supporting the initiative amongst European and US investors (Table 1).

Table 1. The Percentage of Investors in the US and Europe that Support Key Environmental and Social Initiatives

Category	Initiative	Investor Region	Support
Climate	Climate Action 100+	US	68% (17/25)
		Europe	95% (20/21)
	Institutional Investors Group on Climate Change (IIGCC)	US	68% (17/25)
		Europe	95% (20/21)
	Net Zero Asset Managers	US	52% (13/25)
		Europe	81% (17/21)
	CDP Science-Based Targets Campaign	US	8% (2/25)
		Europe	62% (13/21)
	Task Force on Climate-related Financial Disclosures (TCFD)	US	88% (22/25)
		Europe	91% (19/21)
Biodiversity	The Taskforce on Nature-related Financial Disclosures (TNFD)	US	48% (12/25)
		Europe	67% (14/21)
	Nature Action 100	US	4% (1/25)
		Europe	62% (13/21)
Social	The Workforce Disclosure Initiative (WDI)	US	12% (3/25)
		Europe	19% (4/21)
	Advance (UN PRI)	US	24% (6/25)
		Europe	62% (13/21)

5.    Activism

AQTION found that 26 of the 46 investors include their approach to evaluating contested situations within their voting guidelines.

Interestingly, there is a significant difference in disclosure levels between the US and European subset. Where 88% of US investors disclose their approach to contested situations in their voting guidelines, just 19% of the European investors do so (Figure 11).

Figure 6. The Percentage of Investors in the US and Europe that Disclose their Approach to Evaluating Contested Situations

This article is a summation of the bespoke study by AQTION that was covered by the Harvard Law School Forum on Corporate Governance. The full study can be accessed through this link.

Authored By: George Cowlrick, Product Manager at AQTION