Designing and implementing regulatory frameworks for effective stewardship
Designing and implementing regulatory frameworks for effective stewardship
Robert Black and Rory Sullivan
Effective stewardship, with a decisive focus on delivering sustainability outcomes and impacts, delivers real benefits for investors and for society as a whole. Designing and implementing effective regulatory frameworks is critical to its success.
Our latest report with the Principles for Responsible Investment (PRI), How Policymakers can Implement Reforms for a Sustainable Financial System: Stewardship, describes the key elements of an effective regulatory framework for stewardship and the key considerations for policymakers at each stage of the policy lifecycle; initial policy analysis and scoping, policy design, implementation, and monitoring and review. It is supplemented by a series of detailed case studies from around the world including: India, Japan, Kenya, South Africa, Thailand and the UK. It follows previous reports we have collaborated on with the PRI and the World Bank’s financial stability and integrity team on sustainable finance taxonomies, and sustainable finance policy architecture.
The report has three overarching conclusions:
1. Regulatory frameworks for stewardship can take a phased approach to development.
Step 1: Permit – No official position is taken on investor stewardship but it is recognised that investors have legitimate rights and reasons to carry out stewardship to monitor and influence the performance of investee companies.
Step 2: Encourage – The value of investor stewardship in the economy is recognised and explicitly encouraged.
Step 3: Require – Actions are taken to enhance effectiveness and accountability of investor stewardship.
Step 4: Scale up – Investor stewardship is guided towards addressing system level issues and driving positive sustainability outcomes in the real economy.
2. Stewardship is not just about the company and investor relationship. The report explains that the reasons why regulators establish regulatory frameworks for effective stewardship generally fall into two categories: (a) the need to align investor stewardship with investors’ duties to their clients or beneficiaries; and (b) the desire to facilitate stewardship as a tool to support public policy objectives.
Investors can use their influence over policy makers and other non-issuer stakeholders by, for example, engaging with policy makers, engaging with standard setters, and contributing to public goods (such as research) and public discourse (such as media) that support stewardship goals.
3. Monitoring and review processes are critical. Whether policy projects are at the national scale or at an institution level implementation is more consistent and effective when monitoring and review processes are built into the initial policy design. It enables analysis of whether the regulations have been effective and allows for evolution of the regulation as the context of the regulation changes.