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Asset managers urged to ‘step up’ on pensions voting transparency

UK pensions minister issues warning as schemes lack detail on voting, disclosure and engagement

Serious improvements in pensions transparency are required as two reports released this week show most asset managers were unable to provide details of how they exercised their voting rights, and the UK ranked behind Canada, Australia and many European countries in terms of the quality of pensions disclosures.

Dalriada Trustees, in conjunction with Minerva Partners, contacted 43 asset managers in the UK to ask for details on how they had used their influence in voting as investors. Some 28% provided no information, while 40% said there was no information to report, indicating many trustees are being kept in the dark on how their pension pots are being overseen.

Similarly, asset managers were lacking appropriate data required by pension scheme trustees on their engagement with investee companies. Only 23% of managers were able to provide detailed information on engagement they undertook, a further 19% were able to provide partial information. 42% of managers provided no information on engagement, while 16% said that there was no information to report.

This is despite trustees of both DB, DC and hybrid schemes being required by law to create an annual Implementation Statement, which outlines how their policies on exercising rights, including voting rights, and engagement with their investments have been undertaken.

See also: – PLSA issues Implementation Statement guidance

David Crum, managing director, asset steward solutions at Minerva Analytics, commented: “The newly introduced requirement for trustees to create Implementation Statements is an incredibly important legal obligation, helping scheme members understand what stewardship actions have been taken on their investments by their scheme’s asset managers.

“At a time when many trustees and scheme members alike are worried about important issues such as climate change, it’s incredibly disappointing the majority of asset managers appear to subscribe to the view that they cannot explain their policies, approaches and actions to their ultimate employers.” 

UK pensions minister, Guy Opperman (pictured) also said: “It’s totally unacceptable that fund managers are unable or unwilling to respond to reasonable requests from pension funds for information on how their votes were cast. Pension fund trustees need this information to fulfil their statutory and fiduciary duties. Asset managers need to step up, use their votes and report efficiently. I will be closely monitoring progress.”

Transparency benchmark

Meanwhile, the UK has ranked sixth in a newly created Global Pension Transparency Benchmark. Put together by CEM Benchmarking (CEM) and Top1000funds.com, the benchmark uses hundreds of data points from the largest five schemes in each of the 15 countries. CEM ranked each country on the quality of its disclosures across four factors: governance and organisation; performance; costs; and responsible investing. These factors were then combined to give an overall score out of 100.

The top five, in order of ranking, were Canada, The Netherlands, Sweden, Australia and Denmark, with the UK coming in sixth place.

Drilling down into the different factors, the UK ranked fifth place for governance with a score of 63/100, which CEM said in part due to the disclosure of board competencies and qualifications. For costs, the UK came seventh (56/100), reflecting the absence of asset class disclosures, and also seventh for responsible investing (47/100) as companies “laid out where oversight of responsible investing resides and who is accountable”. Finally, the UK placed 10th for performance (66/100) with CEM highlighting the UK scored well in most areas but and would have ranked higher had asset class level performance been disclosed.

Principal at CEM Benchmarking, John Simmonds, commented: “The report highlights the need for serious improvement in pension transparency across the globe. Here in the UK, the overall result provides some comfort that we have a reasonably robust governance and disclosure regime for corporate pension schemes, although there wasn’t any particular area that shone out. There is clearly still plenty of room for improvement….we can still learn from the Nordics, North Americans and Australians in particular.  The existence of the benchmark will help because we now have a yardstick to measure ourselves and clarity about how we can improve.”

Action steps for pension investors

As we approach AGM season, the Pensions and Lifetime Savings Association (PLSA) has updated its annual Stewardship and Voting Guidelines to help pension fund investors understand companies’ response to Covid-19.

The association said it reviewed the guidelines in 2020 to ensure they remain relevant amid the challenges posed by Covid-19 and a fast-moving regulatory environment and ensure they remain a useful for resource in providing practical guidance for schemes considering how to exercise their vote at annual general meetings.

Virtual AGMs

The PLSA highlighted since the UK entered the first period of lockdown a year ago when citizens were encouraged to ‘stay at home’, virtual AGMs have become part of the ‘new normal’, and enabled in law by the Corporate Insolvency and Governance Act on 26 June.

However, there have been concerns about how meeting virtually could reduce investor engagement, and as a result, the PLSA advises voting against any motion that would make virtual AGMs permanent, rather than specifically linked to government policy, or with a sunset clause attached.

“The Voting Guidelines encourage investors to seek assurances from companies that they are looking at how to use virtual AGMs to not only protect investor engagement opportunities, but increase them,” the PLSA said.

Workforce and remuneration practices

Investors will be keeping a close eye on remuneration this season as management have overseen businesses in what has been an unprecedented time – and many have reacted differently. The PLSA pointed out remuneration is seen by many investors as a litmus test for wider corporate governance practices; it encompasses board effectiveness and leadership, challenge and oversight, as well as strategy and risk management.

“The PLSA Stewardship Guide says significant pay discrepancies between a company’s senior executives and the rest of the workforce, as well as those based on gender or ethnicity, can be a signifier of wider issues with a workplace’s culture and processes. This has become particularly sensitive in the Covid era, where many companies have had to make tough financial decisions relating to workforces, and made use of government support in order to pay wages.”

See also: – Executive pay: What is the right thing to do in times of crisis?

The association added consideration should be given to how the company has been impacted by coronavirus, the level of financial support accepted from government, and how this might impact the perception of remuneration among stakeholders.

Climate change

The PLSA guide has also been strengthened to reflect the Taskforce on Climate Related Financial Disclosures (TCFD) reporting requirements on premium listed companies, announced to become mandatory by the Chancellor last November, and may also include smaller companies in the coming years. 

With the COP26 summit due to be hosted in the UK in November, the guide reminds pension scheme investors that large companies should have clear evidence that they are either reporting against the TCFD framework, or preparing to do so, and that investors should consider voting against a company’s climate change and sustainability policy if they cannot demonstrate this.

See also: – How can pension portfolios protect against the climate crisis?

Joe Dabrowski, deputy director of policy at the PLSA, said investors recognise how incredibly tough the last 12 months have been for companies to navigate when you consider the adaptation to new remote working practices and technology, transforming operations to a socially distant world, reacting to changing government guidance, reorganising workplaces to make them Covid safe and making difficult staffing decisions; not to mention the tragic personal toll the virus may have had on staff and their families.

“Whilst being empathetic to these issues, AGM season is an opportunity for pension scheme trustees and their asset managers to engage with company directors, to revisit environmental, social and governance policies and seize the chance to build back better than before,” he said.

“This is not only the right thing to do, numerous studies have shown that companies that uphold the highest ESG standards tend to financially outperform as well, adding value to the millions of pension savers they count among their shareholders.”

Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021. Winner of Aegon Asset Management's Institutional Journalist of...