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

AQTION, a subsidiary of SquareWell Partners, published its inaugural study – ‘Stewardship in AQTION’ – which details how the world’s largest 65 asset managers and owners steward their portfolio companies and how they incorporate extra-financial considerations into their investment decision-making processes.

The study finds that investors are continuing to vocalize their expectations on extra-financial topics with a growing level of transparency and the low barriers to implement “activist” tactics by investors, such as commenting to media, suggests that pressure will remain on corporate boards to be pro-active in responding to investor demands, and to present a compelling “equity story” that incorporates mega-trend sustainability topics, but crucially, that is grounded in a robust governance structure.

For Harvard Law School, AQTION drafted a bespoke article that leveraged the findings from the ‘Stewardship in AQTION’ study to further analyze the similarities and differences between the stewardship practices of US and European investors (46 investors in total – 25 US investors, and 21 European investors). Sovereign Wealth Funds, Canadian, Japanese, and Korean investors from the initial study were excluded.

The review demonstrates a high level of congruence between the two groups, however, there remain several differences worth highlighting:

• Decision-Makers: European investors involve more the portfolio/fund manager in the final voting decisions at general meetings when compared to their US-peers which demonstrate a slightly higher reliance on the recommendations of their selected proxy advisors.
• Principles vs Pragmatism: Divergences on select governance topics have also emerged; for example, while US investors evaluate the combination of Chair/CEO roles on a case-by-case basis, European investors suggest a more dogmatic approach by communicating a strict preference for an independent Chair.
• Sustainability Agenda: European investors have, proportionally, supported/endorsed more environmental and social initiatives than their US-peers. While climate initiatives appear to be more broadly supported, European investors appear to be taking the lead in supporting initiatives relating to biodiversity and social topics.
• Activism: US investors are more transparent in disclosing their approach to evaluating proposals made by activists than their European peers. European investors, on the other hand, have been more vocal than their US peers in publicly communicating their concerns with specific portfolio companies and exhibiting a more “active” stewardship approach.

The article drafted for Harvard Law School can be accessed here.