Academic ends DKK 3.2 billion contract with State Street due to Environmental, Social, and Governance (ESG) issues
In the realm of European finance, a significant shift is underway as asset owners aim to create a more coherent and harmonized stewardship framework. This push comes in response to growing concerns over stewardship alignment, with 26 major asset owners, collectively managing approximately $1.5 trillion, issuing a statement last month to provide managers with clearer expectations.
One of the most notable developments in this space is the call for a unified EU stewardship code. The Institutional Investors Group on Climate Change (IIGCC) has advocated for such a code, suggesting it should build on existing frameworks from Europe and internationally, such as the UK and Japan, to avoid fragmentation and reduce reporting burdens.
This code is recommended to be supported by targeted regulatory reforms that clarify engagement processes, escalation mechanisms, and the integration of sustainability factors. A coordinated review of the Shareholder Rights Directive II (SRD II) and Sustainable Finance Disclosure Regulation (SFDR) is proposed to align stewardship-related disclosures.
As institutional asset owners increasingly reclaim the stewardship narrative, translating their fiduciary duties into strategic influence over investee companies, active ownership practices are becoming more sophisticated. Active ownership goes beyond proxy voting and includes the use of due diligence questionnaires (DDQs) to assess managers’ stewardship. Leading stewardship initiatives like PRI’s “Active Ownership 2.0” provide guidance on these advanced engagement strategies.
The trend towards integrating stewardship with sustainability goals, notably net zero transitions, requires investors to have clear, aligned frameworks to play a central role in driving behavioural change in companies across Europe.
Recent high-profile moves reflect this shift. UK master trust The People’s Partnership divested £28bn from State Street last month, citing concerns over stewardship alignment. Similarly, UK master trust Now:Pensions ceased collaboration with BlackRock and Legal & General last year for the same reason.
Akademiker, a Danish pension fund managing approximately DKK 157 billion, has ended its collaboration with State Street following a review of its Environmental, Social, and Governance (ESG) processes. State Street had managed a European equity mandate for Akademiker since 2005, with the mandate amounting to DKK 3.256bn at the end of last week. This divestment by Akademiker is part of the pension fund's shift towards in-house management.
A spokesperson for State Street commented that the decision to reduce the use of external managers by Akademiker was prompted by an exercise to increase insourcing capabilities. State Street Global Advisors looks forward to continued discussions with MPIM on future opportunities.
However, State Street has shown very little backing for social and environmental resolutions put forward in the 2024 AGM season, according to ShareAction's latest report. In early 2024, State Street departed from the climate coalition CA100+.
In summary, the stewardship landscape for European asset owners is moving towards a more harmonized, regulated, and strategically aligned framework that supports sustainability and long-term value creation through effective active ownership and engagement across borders and sectors. This is supported by calls from key investor bodies for regulatory clarity, alignment, and practical guidelines to ensure consistent stewardship practices in line with evolving ESG expectations.
- The Institutional Investors Group on Climate Change (IIGCC) has proposed a unified EU stewardship code, which should be built on existing frameworks from Europe and beyond to prevent fragmentation and lessen reporting burdens.
- Given the trend towards integrating stewardship with sustainability goals, such as net zero transitions, investors need clear, aligned frameworks to drive fundamental behavioral change in companies across Europe.
- In recent developments, Akademiker, a Danish pension fund, has ended its collaboration with State Street following a review of its Environmental, Social, and Governance (ESG) processes, citing concerns over stewardship alignment.
- State Street, on the other hand, has shown scarcity in supporting social and environmental resolutions, as illustrated in ShareAction's latest report, and has departed from the climate coalition CA100+ in early 2024.
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