Who Are Institutional Investors Really Stewards For?

Institutional investors have become some of the most influential actors in modern capitalism. They decide where vast pools of pension and other savings are invested, exercise shareholder rights across thousands of companies, and increasingly shape corporate responses to issues ranging from executive pay to climate change. Yet only a few decades ago, institutional shareholders were routinely criticised as passive or ‘absentee owners’. Today, they are expected to be stewards of the companies and other assets—and increasingly the economies and systems in which they invest.

How did we get here? More importantly, who are institutional investors really stewards for?

My new book, The Path to Enlightened Investor Stewardship, examines these questions by tracing the evolution of shareholder governance over two centuries, from changing ideas of ownership and control to the rise of institutional investors and the emergence of shareholder stewardship—and more broadly investor stewardship—as one of the defining concepts of contemporary corporate governance.

From shareholder ownership to investor stewardship

The emergence of stewardship reflects a profound change in both the ownership of public companies and our expectations of institutional shareholders.

As ownership became increasingly intermediated, the traditional image of the shareholder as an individual owner became less convincing. Institutional investors exercise investment and governance powers over assets ultimately financed by others. Pension beneficiaries, retail investors and other savers may be economically exposed to companies while remaining several steps removed from the exercise of shareholder rights.

At the same time, shareholder activism changed. Once associated primarily with investors seeking change at individual companies, activism has expanded as institutional investors have come to hold highly diversified portfolios and confront risks—climate change, financial instability and other systemic risks—that cannot readily be addressed company by company.

Stewardship has consequently begun to move beyond interventions directed at individual investee companies. It can encompass portfolio-wide engagement, collaborative initiatives, engagement across entire sectors and, increasingly, attempts to address risks affecting markets and economic systems.

This expansion creates a conceptual difficulty. The further stewardship moves beyond the individual company, the less obvious it becomes what stewardship is for and to whom the steward is accountable.

Stewardship on behalf of whom?

Investor stewardship is often defined by reference to what investors do: voting, monitoring companies, engaging with boards and escalating concerns. The book argues that this is too narrow.

Stewardship is better understood as a relational concept. At its core lies the exercise of investment power on behalf of others.

This matters because institutional investors sit within complex chains of delegation. Asset managers may act for pension funds and other institutional clients; asset owners act for beneficiaries; both exercise influence over investee companies; and their decisions can have consequences extending well beyond individual portfolios or companies.

These relationships can generate tensions. What benefits an individual company may not necessarily benefit a diversified portfolio. An intervention designed to mitigate systemic risk may impose costs on particular companies. And attempts to address environmental or social problems raise important questions about fiduciary responsibility, accountability and legitimacy.

The central challenge for stewardship is therefore not simply whether institutional investors should engage more. It is for whom stewardship is exercised, towards what ends, and how these different relationships and responsibilities should be reconciled.

What do investors themselves understand by stewardship?

The UK provides an especially important setting in which to investigate this question. Its Stewardship Code has been at the forefront of efforts to institutionalise stewardship and has provided a model for regimes around the world. 

Yet regulatory expectations tell us only part of the story. Whether investors themselves understand stewardship in the same way—and whether those expectations translate into practice—are separate questions.

To examine this, The Path to Enlightened Investor Stewardship combines legal and theoretical analysis with computational methods, using natural language processing to analyse hundreds of UK stewardship reports.

The analysis reveals striking variation. For some investors, stewardship remains closely associated with traditional corporate governance: voting, monitoring boards and engaging with individual companies. Others articulate a broader understanding, linking stewardship to long-term investment outcomes, sustainability, portfolio-wide risks and the functioning of markets.

Stewardship has therefore expanded without becoming conceptually settled. The same term can encompass markedly different activities, motivations and understandings of responsibility.

This ambiguity matters. Simply calling for ‘more stewardship’ tells us remarkably little about what investors should actually do—or whose interests their stewardship should ultimately serve.

Towards enlightened investor stewardship

Rather than searching for a single model of stewardship, the book develops a multidimensional framework showing that investor stewardship takes different forms—across different actors, asset classes, motivations and methods, and at different levels of intervention.

Building on this framework, the book proposes enlightened investor stewardship. It begins with fiduciary responsibility but recognises that beneficiaries are exposed not only to the performance of individual companies but also to portfolio-wide and systemic risks.

The book traces the UK Stewardship Code from the first-generation Codes of 2010 and 2012, centred largely on shareholder oversight and corporate governance, to the broader second-generation 2020 Code, which extended stewardship beyond listed equity and reflected growing attention to sustainability and systemic considerations.

Against this evolution, the book makes the case for a third generation of investor stewardship. Drawing an analogy with section 172 of the Companies Act 2006, it argues that stewardship should remain anchored in the interests of clients and beneficiaries, while requiring investors to have regard to the wider economic, environmental and social systems on which their long-term interests depend. Interestingly, the 2026 Code, published after the book had gone to press, moves in this direction, re-anchoring stewardship in long-term value for clients and beneficiaries while retaining regard for the economy, environment and society on which they depend.

This is not an invitation for investors to pursue whatever social objectives they consider desirable. Rather, it recognises that institutional investment is embedded within a wider network of relationships and dependencies. Recognising those relationships does not eliminate difficult questions about fiduciary duty, legitimacy or accountability. It makes confronting them unavoidable.

That may be the next stage in the evolution of stewardship.

The debate began with whether institutional shareholders should behave more like responsible owners, and subsequently shifted towards how they should exercise stewardship effectively. But as stewardship expands across companies, portfolios and systems, a more fundamental question comes into view.

The question is no longer simply whether institutional investors should be stewards, but what kind of stewards they should be—and for whom.

The Path to Enlightened Investor Stewardship (Cambridge University Press) is available here.

Dionysia Katelouzou is a Reader in Corporate Law and Associate Dean for Doctoral Studies at The Dickson Poon School of Law, King’s College London.