UK stewardship survey points to manager opportunities – PLSA

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Stewardship has risen up the agenda for UK pension funds but has to compete for attention with challenges stemming from major policy reform and changes in life expectancy, the UK pension association has said.

The comments were made by the Pensions and Lifetime Savings Association (PLSA) in connection with the publication of the 2015 edition of its annual stewardship survey, introduced in 2004.

Sixty UK pension funds with £260bn (€360bn) in combined assets under management participated in the survey, 62% of which are private sector funds.

Belief in the materiality of environmental, social and governance (ESG) factors for investment returns remains strong, with 93% of respondents backing this view.

The principle of stewardship is also strongly endorsed, with nearly all respondents (98%) either agreeing or strongly agreeing that pension funds have stewardship responsibilities.

Luke Hildyard, policy lead on stewardship and corporate governance at the PLSA, said the findings were encouraging but pointed to some survey outcomes “that should prompt contemplation rather than congratulation”.

“[I]t’s vital that pension funds ensure they have meaningful policies on stewardship, supported by concrete performance indicators, and regularly monitor the implementation of these policies through dialogue with and scrutiny of their asset managers,” he said.

The notion that there is room for progress appears to be shared by the survey respondents, only 5% of which strongly agree that institutional investors, including pension funds and asset managers, have been “active enough” stewards of investee companies – 66% chose the simple ‘agree’ option.

The vast majority of respondents are signatories to the UK’s 2010 Stewardship Code (72%), with a further 10% planning to sign up within the next 12 months.

Still, only 29% of investment consultants raised stewardship during discussions with respondents, the PLSA’s report highlights, and 37% of respondents regularly discuss stewardship issues at trustee meetings.

More than one-third of pension funds taking part in the survey still do not disclose their voting records (37%), while 56% outsource voting rights to their asset managers.

One of the biggest changes is the jump in the number of respondents setting out specific stewardship expectations in their mandates for managers, up from 38% two years ago to 68% in this year’s survey.

Last year, the figure stood at 51%.

The PLSA, meanwhile, said that, as important as increased stewardship may be, improvements in this area have to compete with other challenges facing pension funds resulting from “profound” changes in life expectancy and policy.

“Therefore,” it said, “it would be unsurprising if stewardship and ESG were not considered to be top priorities for fund administrators relative to – for example – major deficit challenges; the workload deriving from auto-enrolment; or the massive ‘freedom and choice’ changes to the way consumers access their pension.”

The survey findings point to a business opportunity for asset managers, according to the PLSA.

These indicate that more work is to be done on improving stewardship but also that asset managers are equipped to add value to investments through engagement with investee companies (as agreed by 93% respondents).

“[I]t thus follows,” the survey report continues, “that asset managers could generate a commercial advantage by enhancing the quality of stewardship. The findings on reporting suggest that better integration of stewardship with investment matters would be the most obvious means of doing so.

“For some asset managers, this is already – to differing extents – common practice, but it is not yet universal. But, taken together, the findings of this survey demonstrate a clear appetite for investment to turn good stewardship practice into fully integrated excellence.”

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