Investment management, stewardship and sustainability : transformation and challenges in law and regulation

This book brings together thought leadership from academia and leading figures in asset management in key global jurisdictions, to pool together insights regarding the transformative visions and challenges for modern investment management, as well as best practices that realise the policy objectives in regulation and soft law. The world of investment management is being challenged by new legal, regulatory and soft law developments to demonstrate that their practices cohere with the long-term needs of the saving population as well as public interest needs in financing global sustainability and social development. The chapters in this book uniquely bring together the views of academia and practice on the key developments that can transform the law and practice of investment management, including the EU’s new sustainable finance reform package, the UK Stewardship Code 2020, and developments in the US regarding the fit between fiduciary law for investment management and modern sustainability concerns. The book brings together the best of both worlds – critical thoughtful perspectives from academia and qualitative insight from the investment management industry. It will be of interest to researchers in law, investment management, business and management, practitioners in the investment management industry and their legal advisers, and policy-makers in the EU, UK and beyond who are grappling with the appropriate governance paradigms for bringing about more sustainable outcomes globally. Table of Contents List of Contributors Abbreviations and Acronyms Introduction: Investment Management, Stewardship and Sustainability: Key Gaps and Challenges I. Aims and Objectives II. Methodologies in the Volume III. Is There an Expectations Gap Based on the Irreconcilability between Incentives for Investment Management and Broader Hopes for the Industry"s Roles? IV. The Mapping of Different Policy Instruments on Investment Management Practice V. Concluding Remarks on the Three Role Perceptions for the Investment Management Industry and Where Next for the Expectations Gap PART I: THE CONCEPTION, POLICY AND EXPECTATIONS OF INVESTMENT MANAGEMENT STEWARDSHIP AND SUSTAINABLE FINANCE 1. From Universal Owners to Hedge Funds and Indexers: Will Stewardship Drive Long-Termism and Sustainability? I. Introduction II. The Long-Standing Policy of Encouraging Institutional Investor Engagement III. The Post-Global Financial Crisis Stewardship Agenda IV. The Rise of Hedge Fund Activism V. The Rise of Passive or Index Investors VI. Conclusion 2. The Evolution of 'Engagement' as a Norm in Investment Stewardship in the UK and the Impact of Sustainability Demands I. Introduction II. The 'Normification' of Institutional Shareholder Engagement and the Narratives that Led to its Re-setting III. Stewardship Code 2020 IV. The Implications of the Sustainable Finance Reforms in the EU and UK V. Conclusion 3. Institutional Investors and Sustainable Finance – Developing the Shareholder Engagement Framework in Light of the Emerging Sustainable Finance Regime in the EU I. Introduction II. Institutional Engagement under SRD II III. The European Sustainable Finance Agenda IV. Sustainable Finance and the Interests of the End Investor V. Sustainable Finance and the Connection with SRD II VI. Concluding Remarks 4. Sustainable Investment and Asset Management: From Resistance to Retooling I. Introduction II. The Mainstreaming of Sustainable Investment III. The Evolving ESG Regulatory Landscape in the United States IV. Navigating the Sustainable Finance Transition 5. The EU Taxonomy: A Key Step for Sustainable Finance I. General Introduction II. Taxonomy: A Classification Tool for Environmentally Sustainable Activities, or the Novelty of an Operational Definition III. Application of the Taxonomy to Sustainable Finance IV. The Future of the Taxonomy Regulation: Focus on Two Key Areas V. Conclusion 6. Direct Mandatory Corporate Social Responsibility Legislation: Lessons from China and Indonesia I. Introduction II. Article 5 of Chinese Company Act 2006 III. Article 74 of Indonesian Limited Liability Company Act IV. Assessment of the Efficacy of a General, All-Encompassing CSR Duty for Companies V. Conclusion 7. The Voting Behaviour of Institutional Investors and Retail Shareholders and the Interests of Beneficiaries I. Introduction II. The Turbulent Life of Telecom Italia III. Methodology IV. Loyalty, Voice and Exit of Retail Shareholders, Pension Funds and Mutual Funds V. Say on Pay Voting Behaviour of Shareholder Classes VI. Preferences of Retail Shareholders and Benefiaries of Funds and Funds' Behaviour VII. Discussion and Conclusions 8. Common Ownership and Corporate Social Responsibility: Evidence from the BlackRock-BGI Merger I. Introduction II. Literature Review III. Profit Weights, Data Sources, and Summary Statistics IV. Does Common Ownership Drive E&S Performance? V. Common Ownership and E&S Performance VI. Conclusion PART II: PRACTICAL REFLECTIONS ON INVESTMENT MANAGEMENT STEWARDSHIP AND SUSTAINABLE FINANCE 9. Responsible Investing: The Status Quo and Remaining Challenges I. Introduction II. Emerging Sense of Purpose III. From Sustainable to Impactful IV. Remaining Challenges 10. The Future of Stewardship: Time to Take a Step Back I. Introduction II. The Stewardship Code 2020 III. Key Concepts: Engagement Outcomes, ESG Issues, Materiality and Fiduciary Duty IV. FRC's Review of Stewardship Reporting V. Key Building Blocks of Impactful Engagement VI. The Missing Links in Current Stewardship Practice and How to Close The Gaps VII. Summary and Conclusion 11. Responsible Investment I. A New Specialism II. Lost in Translation III. What I Talk About When I Talk About Responsible Investment IV. Capital V. Recommendations for Being a Better Responsible Investment Professional 12. Investment, Sustainability and Stewardship: Perspectives of a Sovereign Wealth Fund I. Introduction: Rights and Responsibilities II. Sovereign Wealth Fund in Norway – The Investment Framework III. In it for Future Generations – The Value of Improving Market Practices IV. Return and Risk for Future Generations – The Value of Portfolio Monitoring and Adjustment V. Making the Best Version of the Company – The Value of Investor Stewardship VI. Conclusion – Understanding Our Special Role 13. Evolution of Sustainable Investing: A US Perspective I. Introduction II. At the Root: Legal Factors Differentiating the US on Sustainable Investing III. Other Factors Differentiate the US on ESG IV. Where Differences May Be Over-Emphasised V. Key Sustainable Investment Challenges for the US VI. Conclusion 14. The Model Mandate: Hardwiring Stewardship into Investment Management I. Introduction II. Historical Context III. Purpose of the Model Mandate IV. Core Concepts V. Before Negotiating Mandates VI. Mandate Design, Negotiation, Manager Selection and Manager Monitoring VII. Alignment between Asset Managers and Asset Owners VIII. Accountability IX. Asset Manager Reporting to the Client X. Conclusion Appendix: Sample Contract Provisions 15. Corporate Purpose: Narrowing the Gap between Corporates and Investors on Sustainability Issues I. Introduction II. Corporate Purpose: New Paradigm or New Label III. A Sample of Scepticism IV. Rethinking Value: The Rise of ESG V. Purposeful Steps – Joining the Dots with ESG VI. The Politics of Purpose VII. Parting Thoughts 16. Targeting Net Zero: Embedding Accountability for Portfolio Decarbonisation and Resilience in the Asset Owner – Asset Manager Relationship I. Introduction II. Climate-Related Financial Risk and the Road to Net-Zero III. Design and Delivery of Climate Resilient Investments IV. What Does it Mean to be a Net-zero Investor? V. Brunel Case Studies VI. Discussion VII. Conclusion 17. Net-Zero Asset Owner Alliance Climate Voting Transparency and Benchmarking I. Introduction II. A Quantitative Analysis of NZAOA Members' Records III. Case Studies IV. Recommendations V. Conclusions Index "This book brings together thought leadership from academia and leading figures in asset management in key global jurisdictions, to pool together insights regarding the transformative visions and challenges for modern investment management, as well as best practices that realise the policy objectives in regulation and soft law. The world of investment management is being challenged by new legal, regulatory and soft law developments to demonstrate that their practices cohere with the long-term needs of the saving population as well as public interest needs in financing global sustainability and social development. The chapters in this book uniquely bring together the views of academia and practice on the key developments that can transform the law and practice of investment management, including the EU's new sustainable finance reform package, the UK Stewardship Code 2020, and developments in the US regarding the fit between fiduciary law for investment management and modern sustainability concerns. The book brings together the best of both worlds-critical thoughtful perspectives from academia and qualitative insight from the investment management industry. It will be of interest to researchers in law, investment management, business and management, practitioners in the investment management industry and their legal advisers, and policy-makers in the EU, UK and beyond who are grappling with the appropriate governance paradigms for bringing about more sustainable outcomes globally"-- Provided by publisher