Faith Ward, the chief responsible investment officer at Brunel Pension Partnership (Brunel PP), has called for a constructive dialogue between asset owners and asset managers as she fears short-term considerations may be eclipsing the long-term interests of pension funds.
As chair of the UK Asset Owner Roundtable, Brunel PP will soon convene a meeting of major fund managers following the proxy voting season.
The aim of the meeting will be to review how asset owners’ long-term interests have been served by their managers when exercising their stewardship and proxy voting at major European oil and gas companies, she noted in a letter inviting the UK Asset Owner Roundtable.
“Concerns have been raised by several members of the UK Asset Owner Roundtable, including, Scottish Widows and the Church of England Pensions Board as well as ourselves about a perceived misalignment between our long-term interests and how investment managers are exercising proxy voting at key annual general meetings of European oil and gas majors,” she added.
Specifically, UK asset owners are concerned that despite unequivocal warnings from the United Nations and the Intergovernmental Panel on Climate Change (IPCC) of the risks of delayed action on climate change, that short-term interests are trumping long-term interests of pension funds.
Delayed action on climate, she continued, increases the chances of a disorderly climate transition and missing the goals of the Paris Agreement. Hoepner added: “We find that about 5% of issuers receive at least one climate voting proposal within the largest thousand firms but this number drops to about 0.5% and 0.1% in the second and third thousand, respectively. Hence, asset owners led by Faith and others are urgently needed to nudge the average asset manager to dial up their efforts in the face of the climate crisis.
“This in turn increases the risks to pension funds long-term interests and the ability of those funds to serve the interests of their members/beneficiaries.”
Following the proxy season, Brunell PP will commission a leading academic to review the way significant asset managers have interpreted their clients’ long-term interests in the exercise of their stewardship duties.
“We will be particularly focussing on how managers have voted at key [annual general meetings] AGMs in Europe as proof points for our understanding of their approach and our needs,” Ward said.
Andreas GF Hoepner, full professor of operational risk, banking and finance at University College Dublin (UCD), told IPE: “I very much welcome Faith’s initiative. From a financial data science perspective, there is indeed perceived misalignment between asset owners’ long-term interests and how many though not all investment managers are exercising proxy voting at AGMs in general.”
UCD’s Greenwatch – an impact-driven team of sustainable finance experts from academia and industry – recently teamed up with scholars from the EU’s Joint Research Centre to study the climate proxy voting efforts of 3,000 AGMs in the four years between Paris Agreement and pandemic.
Hoepner added: “We find that about 5% of issuers receive at least one climate voting proposal within the largest thousand firms but this number drops to about 0.5% and 0.1% in the second and third thousand, respectively. Hence, asset owners led by Faith and others are urgently needed to nudge the average asset manager to dial up their efforts in the face of the climate crisis.”
Peter Taylor, corporate programme director at Institutional Investors Group on Climate Change (IIGCC), told IPE: “Where asset owners and asset managers are aligned in their stewardship goals and approach, we can expect to see more impactful outcomes and more efficient processes. Ultimately, alignment is a better path to harnessing the potential influence of both groups, whereas fundamental misalignments risk diminishing the prospect of achieving either group’s stewardship objectives.”
Moreover, Taylor added, in the context of climate-related stewardship, a lack of alignment may inhibit progress towards achieving the goals of the Paris Agreement and increase the prospects of a disorderly transition – both of which pose risks to investors’ long-term interests.
Within this context, he said that asset owner and asset manager alignment was identified as one of the key steps in IIGCC’s Net Zero Stewardship Toolkit published last year.
“In addition, through our asset owner working group we are also exploring ways in which to encourage further alignment between the two, including practical elements such as the disclosure of information around voting policies, selection and monitoring. We look forward to further exploring this topic with our members in the coming months,” Taylor said.