The world’s biggest asset managers have embarked on a hiring spree across their stewardship and sustainable investing teams, as fund houses tap into growing demand for environmental, social and governance investing.
The number of people in the stewardship teams of the leading fund houses almost doubled between 2017 and 2020, according to data compiled by the Financial Times. Stewardship teams typically oversee discussions with board directors on issues from executive pay to environmental disclosures, as well as voting at the annual meetings of companies around the world.
At the same time, the number of people working in other dedicated ESG jobs jumped almost fourfold, the data shows.
Emma Wallis at the Buy-Side Club, a recruitment company specialising in asset management, said recruiting for sustainable roles had surged in recent years. “It is one of the biggest trends we are seeing [in asset management recruitment].”
Amandeep Shihn, head of sustainable investment manager research at Willis Towers Watson, which advises pension funds and charities on which asset managers to use, said stewardship had traditionally been an under resourced activity. But asset managers were hiring more to satisfy demand from pension funds and other asset managers.
“There has been an awakening,” he said. “Stewardship is becoming more important for asset owners and for investment consultants. We are starting to see that investors are looking at stewardship as a potential differentiator.”
Many of the biggest investors are focusing more on sustainable investing, including Japan’s $1.5tn Government Pension Investment Fund. At the same time, figures from Cerulli Associates, a research company, show that more than two-thirds of investors under 30 prefer their investments to have a positive social or environmental impact.
For the research, the FT approached 31 of the largest investment companies in terms of assets under management.
Twenty-seven, including some affiliates, provided at least some numbers on either stewardship or ESG jobs, while only a handful did not. Those not taking part included Fidelity Investments, the US-based asset manager, Pimco, the fixed income house, and PGIM, the investment arm of US insurer Prudential Financial.
Several asset managers with a multi-boutique or affiliate model, where businesses typically operate independently of the parent group, said it was too difficult to gather numbers from various businesses.
This includes Affiliated Managers Group and BNY Mellon, although Insight Investments, a division of BNY Mellon and a top 30 asset manager, did provide its numbers on ESG jobs. Natixis Investment Managers was unable to provide stewardship numbers, but provided data for its ESG staff this year. Legg Mason was the only asset manager with such a model to provide fuller data.
The figures show that big asset managers have an average of 21 people working in stewardship, although this varies significantly across the sector from 47 at BlackRock, which has $7.4tn in assets under management, to just three at Northern Trust Asset Management, part of the US custody bank.
Of the top three asset managers, BlackRock’s stewardship team has grown almost 81 per cent over the past three years, while Vanguard’s has jumped 75 per cent to 35. State Street Global Advisors’ team rose a third.
Invesco had the largest percentage rise in its stewardship team, up 180 per cent from five to 14.
In Europe, Legal and General Investment Management’s team increased 60 per cent to 16, while Axa Investment Managers’ team doubled to eight. In Asia, MUFG Asset Management’s team almost doubled to 21.
Mr Shihn said stewardship teams at the big managers often assessed thousands of stocks and engaged with hundreds of companies. “We think the size of those stewardship teams should be larger, particularly considering the enormity of the task they face.”
Stewardship was potentially the most important job asset managers do, Mr Shihn said, adding that much of the industry had been too focused on capital allocation and the “rejigging of ownership of some asset” rather than the management of that asset.
Stewardship has traditionally been a bigger focus for asset managers with extensive equity investments, because stock ownership allows them to vote at annual meetings. For this reason, the world’s biggest big fixed income managers, such as MetLife and Insight, often do not have a dedicated stewardship team. However, such managers say various investment staff will meet company boards to discuss corporate governance issues.
“Within the fixed income world, some asset managers have started to wake up to the idea that even though they do not own equity they can have a say in how that business operates,” Mr Shihn said.
The FT also asked asset managers for the number of people employed in dedicated ESG jobs that sit outside the stewardship team. This focused on those whose job was solely related to environmental, social, governance or other sustainability issues. As many of the big managers have moved towards an integrated model — where all staff are required to consider ESG risks and opportunities in their investment decisions — not all had large specialist ESG teams.
But the figures revealed that several companies have made hires in this area in recent years, including Capital Group, which has 18 people working in dedicated ESG-related roles, compared to none three years ago. Goldman Sachs Asset Management has 50, up from 14 three years ago, while BlackRock’s team has grown almost fourfold.
BlackRock chief Larry Fink this year outlined plans to put ESG at the centre of the company’s investment process. Barbara Novick, BlackRock vice-chair and head of stewardship, announced last month she was stepping down after more than 30 years with the New York based group. “Our public policy and stewardship efforts are at an inflection point,” Mr Fink said at the time. Ms Novick’s successor has yet to be named.
Gianfranco Gianfrate, a professor of finance at Edhec Business School, said corporate governance and sustainable work used to be viewed as dull with the roles often filled by those deemed less skilful by bosses.
However, asset managers were now recruiting people with specialist skills and knowledge, he said. “There has been a change in the quality of people in the stewardship teams.”
Sarah Dudney, client partner at the Buyside Club, added that stewardship and ESG teams were often seen as the bad messenger, ringing up chairmen to complain about bad practices. “There was a cultural view that it was a thorn in the side. Now it is seen as a positive force for good in how companies are run.”
Deborah Gilshan, an independent adviser on stewardship, who has worked in this area for nearly two decades, said the growing focus on stewardship and ESG will shock many companies. “I am not sure boards are ready for all of this stewardship that is coming their way because of all of these hires.”
She said the wave of hiring was commendable but the real test was what impact these employees would have on businesses.
She called on asset managers to use all the shareholder tools at their disposals, from filing resolutions and taking a tougher line on voting at annual meetings to using the media to chastise bad behaviour from business. Arguing in private conversations with companies was no longer sufficient.
“It is one thing to staff up, it is another to deliver. But it really has to be about the impact,” she said.