Introduction

The report presents an expanded view of investor stewardship, moving beyond traditional agency theory. It argues for a three-dimensional framework of stewardship that encompasses responsibilities not just to immediate clients and beneficiaries but also to a broader array of stakeholders, including society and the environment.

Redefining institutional investors as stewards

Institutional investors have traditionally been seen as agents, prioritising the interests of their direct clients and beneficiaries. However, this report challenges that view, suggesting that investors also have stewardship responsibilities toward “unseen others,” such as the broader economy and society. The concept of “enlightened stewardship” is introduced, which balances the interests of these various stakeholders, aiming to generate long-term value that extends beyond mere financial returns.

A three-dimensional framework for investor stewardship

The framework proposed by Katelouzou categorises stewardship into three dimensions: client stewardship, end-investor stewardship, and asset stewardship. This multi-dimensional approach allows for a more holistic understanding of the responsibilities that institutional investors bear. Notably, the report highlights the “crowding-in” effect of stewardship codes, which shape investor behaviour by fostering a broader sense of accountability.

The multiple relationships of enlightened investor stewardship

Katelouzou identifies multiple layers of stewardship relationships, arguing that institutional investors should consider the interests of all stakeholders, not just their direct clients. This includes acting on behalf of the environment, society, and future generations. The report underscores that while legal obligations focus on clients and beneficiaries, stewardship codes play a crucial role in broadening the scope of accountability.

The ‘crowding-in’ effect of stewardship codes

Empirical evidence cited in the report indicates that 84% of global stewardship codes now reference ESG factors, signalling a shift toward broader stewardship responsibilities. This “crowding-in” effect is particularly evident in the UK Stewardship Code, which encourages institutional investors to integrate ESG considerations into their decision-making processes. The report suggests that future revisions of such codes should explicitly define the scope of “enlightened stewardship” to ensure that institutional investors contribute positively to society at large.

Conclusion

The report concludes that the traditional view of institutional investors as mere agents is insufficient in today’s complex financial landscape. By adopting an “enlightened stewardship” model, investors can better fulfil their responsibilities to a broader range of stakeholders. The report calls for revisions to stewardship codes, particularly the UK Stewardship Code, to formalise this broader accountability framework, ensuring that institutional investors contribute to the long-term well-being of society, the environment, and the economy.

Recommendations

The report recommends that future iterations of stewardship codes explicitly incorporate the principles of enlightened stewardship. This includes requiring institutional investors to regularly assess and report on the broader impacts of their investment decisions, beyond just financial returns. By doing so, these codes can enhance their relevance and effectiveness, setting a global benchmark for responsible investing .