Governing the Purpose of Investment Management: How the ‘Stewardship’ Norm is being (Re)Developed in the UK and EU

From the introduction of shareholder engagement as a ‘norm’ for stewardship, the regulatory governance of investment management conduct has been ramping up. As investment funds and asset managers assume control of increasing global assets under management and enjoy significant allocative power, public interest in the exercise of such power increases correspondingly. It is inevitable that societal and public expectations would be augmented and the governance needs for the industry would rise. This article argues that the UK Stewardship Code 2020 is a ‘graduation’ from an earlier experimental period which focused on the narrower and process-based ‘norm’ of shareholder engagement. The Code has broken new ground by articulating purpose-based steers for investment management, providing the starting point for a type of governance that may come to define the regulation of investment management in the future. Indeed, sustainable finance reforms such as in the EU and UK may provide the crucial kickstart to introducing non-optional integration of sustainability risks and goals into mainstream investment management in due course. Purpose-based governance, albeit in its soft law beginnings, is arguably a new trajectory for calibrating the relationship between private investment management and regulation, reflecting the public interest and expectations for the future of the industry.