Investment managers should not neglect responsible investment and tackling systemic risk amid the changing political landscape, LCP has stated.

The consultancy has published new best practice principles on how investment managers can use their leverage to combat these risks, such as climate change.

The principles aim to support managers’ clients with discussing systemic stewardship with managers and encourage improvements where a manager’s approaches do not meet their expectations.

Systemic stewardship refers to the actions that are taken by investors to influence the outcomes for financial systems, including engagement with policymakers and regulators rather than just through company engagement, aiming to address systemic risks that could materially harm financial outcomes.

LCP said investment managers played a key role due to the large asset base behind them to use as leverage in their stewardship activities.

The consultancy noted that most managers were already applying issuer-level engagement to tackle systemic risks, and it argued that using systemic stewardship will support this.

It stated that issuer-level engagement on systemic risks was often ineffective without system-level changes.

LCP’s best practice recommendations for investment managers included: having clear public policy positions and a strategic approach that focuses on the most relevant or material risks; checking consistency of positions with trade associations and industry groups that the manager belongs to; and using collaboration where individual engagement will be insufficient to address the risks.

It also recommended investment managers use progress monitoring to review effectiveness and prompt potential escalation; appropriately resource systemic stewardship work; and disclose activity for transparency.

The consultancy’s latest survey of investment managers found that while many managers were engaging with policymakers and regulators to some extent, there was often room for improvement.

“Recent changes in the international political backdrop and polarisation in views has made responsible investment a trickier subject for some investment managers to navigate,” stated LCP Responsible Investment Team principal, Sapna Patel.

“However, systemic risks cannot be solved without considering the high-level structures and functions of our economies, predominantly built upon legislation and regulation. Systemic stewardship is often overlooked but it’s important that asset owners investigate how seriously investment managers are taking this.

“Our principles can be used by investment managers to understand our views on their approach to systemic stewardship, and to consider how it might be enhanced. Importantly, the principles can also be used by asset owners to hold their managers to account and to check whether they are leveraging this important route to addressing some of the biggest risks to good financial outcomes for the future.”

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