Governing institutional investor engagement: from activism to stewardship to custodianship?

Institutional investor engagement with companies is a long-standing goal of policymakers. This article evaluates whether the UK's regulatory and soft law regime is likely to orient engagement towards its goal of long-termism and sustainability. After a historical overview, it notes that institutional investors have considerable discretion in whether and how they engage with companies. Three existing forms of engagement behaviour (termed agency, trusteeship and ownership) are identified, and the article examines whether the current regime promotes or discourages them. All three may degenerate into passivity, short-term share trading or 'bad activism' focused on shortterm value maximisation, satisfying the actors in the investment chain but failing to steer companies towards long-termism and sustainability. The article concludes that the roles of shareholders and company management should be articulated more clearly in the stewardship regime, and puts forward a custodianship model of engagement that balances managerial autonomy and accountability.