Stewardship Across Asset Classes

Most stewardship codes were written with listed equity investors in mind. The language of voting, AGMs, and shareholder resolutions maps naturally onto the world of public company ownership. But the principles of stewardship, preserving and enhancing long-term asset value through active ownership, apply across the full spectrum of investment asset classes. How they are applied, and what levers of influence are available, varies considerably depending on the asset class.

The Core Principle Across Asset Classes

Engagement is fundamentally about influence rather than control. In almost every investment structure, the investor does not run the business, they interact with those who do. The question is always: what levers does this investor hold, and how can they be used effectively to promote better ESG outcomes that protect long-term value?

Listed Equities: The Most Developed Engagement Context

Listed equities remain the asset class where stewardship thinking and practice are most fully developed. Shareholders in public companies have formal legal rights, including the right to vote at general meetings, to propose shareholder resolutions in many jurisdictions, and in some markets to call extraordinary general meetings or request special audits.

These formal rights give equity investors a meaningful toolkit for escalation when dialogue alone proves insufficient. They also create transparency: AGM voting outcomes are typically public, which means that a significant vote against a board recommendation becomes a visible signal to the market, to other shareholders, and to company leadership.

What Equity Engagement Covers

Equity engagement can address the full range of issues affecting long-term value:

• Board composition and effectiveness, independence, diversity, skills, and director accountability
• Executive remuneration, alignment of pay with long-term performance and stakeholder interests
• Capital allocation, dividend policy, share buybacks, debt levels, and major transactions
• Climate and environmental risk, emissions targets, transition plans, physical risk assessment
• Social issues, workforce relations, supply chain labour standards, human rights
• Corporate governance, audit quality, related-party transactions, shareholder rights

Voting as a Stewardship Tool

Voting at AGMs and EGMs is the most visible stewardship mechanism available to equity investors. Most institutional investors now treat voting as a fiduciary responsibility, an asset to be exercised deliberately and aligned to the investment thesis, not a routine administrative task to be delegated without thought.

Voting decisions should be consistent with the engagement agenda. An investor concerned about climate risk governance, for example, might vote against the re-election of board directors who have failed to demonstrate adequate climate awareness at companies with significant physical or transition risk exposures. Concerns about audit quality might translate into votes against auditor reappointment or audit committee members.

Fixed Income: Engagement Without a Vote

Fixed income investors face a fundamentally different situation. Bondholders do not have voting rights at shareholder meetings, their formal legal position is as creditors, not owners. This makes the toolkit for escalation narrower.

Yet ESG factors are directly relevant to fixed income. Poor ESG performance can affect a company's creditworthiness, increasing the risk of default, reducing credit ratings, and widening spreads. Companies that regularly access capital markets to issue debt are increasingly aware that fixed income investors care about ESG as a factor in how they price that debt.

Where Fixed Income Influence Lies

The greatest opportunity for fixed income investors to shape ESG behaviour is at the point of new issuance. When a company comes to market with a new bond, it needs buyers. Investors in the deal have the opportunity to make ESG expectations explicit, whether through the terms of the instrument itself, the covenants attached to the debt, or simply by making clear that their participation (and pricing demands) are influenced by the issuer's ESG profile.

During debt refinancing, bondholders can press for improved ESG reporting as a condition of participation. During green bond issuance, investors engage on use-of-proceeds criteria, the credibility of impact measurement, and the robustness of the independent verification process.

Private debt markets offer even more scope: these transactions are negotiated bilaterally, tend to be longer-dated, and involve a closer working relationship between investor and investee. This creates both the motive and the opportunity for genuine ESG dialogue.

For investors holding existing bonds in a secondary market, the levers are more limited, the primary sanction is selling, which may reduce the company's access to future capital but has no direct governance impact.

Who to Engage in Fixed Income

The natural engagement counterpart for fixed income investors is the corporate treasury team, the function responsible for the company's financing strategy and its relationships with creditors. Increasingly, dialogue with treasury encompasses ESG factors, risk management, and covenants. Where equity investors are engaging the same company simultaneously, alignment of the investor's concerns across both asset classes can be particularly powerful, consistent messaging from both creditor and shareholder constituencies is difficult for management to ignore.

Green Bonds and Sustainability-Linked Instruments

A growing area of fixed income engagement involves green bonds and sustainability-linked bonds (SLBs). These instruments directly link financing terms to the issuer's ESG commitments.

Green bonds ring-fence proceeds for eligible green projects, renewable energy, energy efficiency, clean transport. SLBs work differently: the coupon rate adjusts based on whether the issuer meets pre-agreed sustainability targets.

Private Equity: Direct Board Influence

Private equity represents the asset class where ESG engagement can potentially be most direct and influential, though the engagement interface is different from public markets.

Within private equity fund structures, the direct ESG engagement relationship is between the general partner (GP), the private equity house managing the fund, and the portfolio companies it controls. The limited partner (LP), the asset owner investing into the fund, typically has less direct engagement with the underlying companies, but engages with the GP on how ESG issues are being monitored and managed across the portfolio.

Why ESG Matters More in Private Equity

Private equity investors often hold significant or controlling stakes in their portfolio companies. This gives them board representation and, in many cases, direct influence over management decisions. The governance quality of portfolio companies at the private equity stage has a direct bearing on long-term value, including at exit, whether through IPO or trade sale.

The very public failure of WeWork's IPO process is a well-cited example of poor corporate governance in a private-equity-backed company creating material value destruction. Better ESG governance during the private equity holding period can significantly improve exit outcomes.

The 100-Day Plan

The 100-day plan, the critical post-acquisition window immediately after a deal closes, is where leading private equity firms formally integrate ESG into portfolio company strategy. In the first 100 days, the GP typically conducts a baseline ESG assessment, identifies material risks and opportunities, assigns board-level ESG responsibilities, and sets KPIs that management will be held accountable for throughout the holding period. The 100-day plan is the moment when ESG intentions become operational commitments, before the company's culture and priorities set in a direction that is hard to change.

LP Engagement with GPs

Limited partners who want to ensure ESG is embedded in the management of their private equity holdings focus their engagement at the fund level:

• Evaluating the GP's ESG policy, capabilities, and track record before committing capital
• Requiring reporting on how ESG issues are identified, monitored, and managed across the portfolio
• Engaging the GP in dialogue about specific concerns or portfolio-wide themes
• Using the leverage of future capital commitments as the primary sanction where standards fall short

Real Assets: Infrastructure and Property

Infrastructure

Infrastructure investments are exposed to ESG across the full economic lifetime of an asset, which can span decades. These exposures extend well beyond direct operational issues to include climate change, social licence to operate, bribery and corruption risks, and health and safety across complex supply chains.

Most infrastructure investors operate through specialist managers who take direct responsibility for managing ESG at the asset level. Investors in infrastructure funds therefore engage primarily with those managers, assessing how ESG is embedded in due diligence, post-acquisition management, and reporting.

The PRI recommends eight mechanisms for infrastructure investors acting as engaged owners:

1. Use ESG assessments during due diligence to prioritise attention to material risks and opportunities
2. Integrate material ESG risks into the post-acquisition plan of each asset
3. Engage with management to act on identified ESG risks using available mechanisms
4. Communicate ESG performance expectations clearly to infrastructure business managers
5. Weave ESG factors identified in due diligence explicitly into asset-level policies
6. Advocate for a governance framework that clearly assigns ESG responsibility
7. Set performance targets for environmental and social impact with regular board reporting
8. Make ESG information and expertise available to asset companies to build their capacity

Property and Real Estate

Real estate investors face growing evidence that ESG quality is financially material to returns. Studies have found that sustainable, well-governed properties consistently outperform lower-rated peers, with a measurable gap between top-decile and bottom-decile properties as ranked by benchmarks such as the Global Real Estate Sustainability Benchmark (GRESB). Better-rated properties command higher rents and attract more creditworthy tenants, while poorly rated buildings face growing obsolescence risk as energy efficiency regulations tighten.

Property investors typically engage indirectly, requiring their managers to report on the ESG frameworks and metrics they use to monitor holdings. Industry bodies recommend that real estate investment stakeholders:

• Engage on public policy to manage climate and environmental risks
• Support research on ESG and climate risks affecting real estate
• Support sector initiatives to develop resources for understanding and integrating ESG

Sovereign Debt: Engaging Governments

Sovereign debt presents the most challenging context for engagement. Investors in government bonds are lending to nation states, and the leverage available to influence a government's behaviour is fundamentally limited. Even the largest institutional investors have only marginal influence over a sovereign's policy decisions.

As a result, ESG integration in sovereign debt typically relies more on screening and ESG tilts in the investment process than on direct engagement. Governments are less responsive to shareholder-style dialogue, and the mechanisms for escalation available to equity investors simply do not exist in the same form.

That said, early signs of more active sovereign engagement are emerging:

• The PRI has produced guidance for investors seeking to engage sovereign issuers, acknowledging that this is a nascent area focused more on how engagement might work than on cataloguing successes
• A coalition of 29 investors representing approximately US$3.7 trillion in assets wrote to the Brazilian government in 2020, noting that Brazilian sovereign bonds would be considered high risk if Amazon deforestation continued, and flagging the possibility of divestment
• Green bonds issued by governments have created a new avenue for engagement. Investors educating sovereign issuers about green bond market appetite and standards effectively embed ESG expectations into the terms on which those governments access capital markets
• The ASCOR project (Assessing Sovereign Climate-related Opportunities and Risks) has developed a formal framework for evaluating the climate alignment of sovereign issuers, giving investors a structured tool for sovereign debt engagement on climate, including metrics for a country's policy ambition, targets, and transition credibility

Fund Investments and the Agency Problem

For investors who access asset classes through fund vehicles, including private equity funds, infrastructure funds, real estate funds, and multi-manager vehicles, the engagement challenge takes a specific form. The investor is not engaging the underlying assets directly; they are engaging the fund manager who manages those assets.

This creates an agency gap: the investor's interests may not be perfectly aligned with those of the fund manager, and the investor is often several steps removed from the decisions that ultimately affect ESG outcomes.

Bridging this gap requires:

• Due diligence on the fund manager's ESG capabilities before committing capital
• Clear ESG expectations embedded in the investment mandate or side letter
• Regular reporting on ESG monitoring and engagement activity at the portfolio level
• Active use of the fund board (where one exists) to represent investor interests
• Willingness to signal dissatisfaction through future allocation decisions

Challenges and Emerging Practices

Applying stewardship across asset classes raises several common challenges:

Despite these challenges, the trajectory is clear. Stewardship codes are extending their scope explicitly to all asset classes, not just listed equity. Institutional investors are developing asset-class-specific engagement frameworks. And regulators are increasingly expecting investors to demonstrate that stewardship principles are applied consistently across their entire investment activity.