Building on the findings and recommendations in the reports, A Legal Framework for Impact, Legal Framework for Impact: Australia, and the Stewardship Policy Toolkit, this report sets out the findings of research into how Australian institutional investors conduct stewardship and identifies barriers that limit how effectively they use stewardship to shape sustainability outcomes. The report is accompanied by an analysis of the existing legal and regulatory framework influencing stewardship and sets out initial policy ideas to overcome identified barriers.
- Stewardship practices are evolving as investors increasingly undertake effective stewardship, an approach which has an explicit objective of pursuing real world sustainability outcomes.
- Effective stewardship is increasingly seen as necessary to help mitigate system-level, sustainability risks that are undiversifiable and threaten returns for investors’ broader portfolios.
- When undertaking stewardship, Australian investors tend to favour collaborative activities and policy and direct corporate engagement as opposed to undertaking escalatory measures like filing shareholder resolutions.
- In recent years’, corporate engagement and shareholder action by investors in Australia has increased significantly.
- As stewardship practices and public policies have evolved, gaps have emerged in Australia’s stewardship framework leaving inadequate guidance and direction for investors to undertake effective stewardship.
The research identified eight barriers to effective stewardship, specific to the Australian market:
- Unclear regulatory guidance on investor duties
- Limited regulation on effective stewardship activities
- Confusion on acting in concert rules
- Limited resources and capabilities to undertake stewardship functions
- Hesitancy about using escalatory measures
- Challenges reporting on the effectiveness of stewardship activities
- Cumbersome processes for filing shareholder proposals
- Inadequate disclosures of corporate sustainability performance
Initial Public Policy Considerations
To address the barriers, the report sets out potential policy options for further consideration by the Federal Government and financial regulators:
- Clarify investor duties to address sustainability-related, system-level risks
- Clarify expectations for effective stewardship
- Provide additional guidance and clarification on acting in concert rules
- Investigate how to encourage greater resourcing allocation
- Signal support for effective stewardship
- Provide guidance for tracking and disclosing stewardship outcomes
- Investigate opportunities to simplify and streamline the shareholder resolution process
- Adopt a comprehensive corporate sustainability reporting framework
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