FairPensions attacks pension providers for lack of governance engagement
UK - Insurers providing contract-based pensions fail to engage with companies on the same level as trust-based funds, according to research from FairPensions, which warned of a growing governance gap between the two.
The survey of 10 contract-based providers, including Aegon, Aviva and Legal & General, found that details of responsible investment guidelines were often found only in the company's corporate social responsibility report - while only one of the respondents, Aegon, had a written responsible investment policy separate from its asset management division.
"Insurance companies," the report said, "rely on the responsible investment policy of their asset management arm, which does not take account of the different role played by the insurance company as pension product provider and provides no comfort to customers with respect to externally managed funds."
Of the 10 companies asked to complete the survey, only five responded - with none of the respondents calling on external managers to report on engagement with the portfolio's holdings.
FairPensions said it was "difficult to understand the logic" behind why such information would be requested from internal managers but not from external contractors.
The group's director of engagement Louise Rouse said pension fund members all strove for retirement income security.
"It follows that those savers who have a contract-based pension should be able to expect the same standard of oversight from their pension providers as offered by trust-based schemes," she said.
Seb Beloe, head of sustainability research at WHEB Asset Management, noted his surprise at the lack of governance policies at the surveyed companies, saying that Legal & General Investment Management, Aviva and Scottish Widows Investment Partnership had "very active" teams.
"Clearly, there is a disconnect with other parts of their own businesses," he said.
"This is also paralleled in the corporate world where sustainability leaders such as Kingfisher, Marks & Spencer, Unilever and Vodafone - who see sustainability as core to the health of their business - do not adopt a similar approach in their corporate pension fund."
Beloe predicted that some of the issues over governance and engagement raised in the survey could be addressed by the Kay Review, saying any policy that encouraged longer equity holding periods would "encourage" asset managers to engage more actively with companies.
"Frankly, governance does not matter very much if your holding period is seven months," he said. "It matters a lot more if it is three years."
The paper by FairPensions further criticised that neither the Financial Services Authority nor the Pensions Regulator had shown a "willingness" to include responsible investment within their remit, with the UK's Stewardship Code currently overseen by the Financial Reporting Council.
Beloe, however, was unsure if regulatory intervention was the best approach to take, noting the success of the UN's Principles for Responsible Investment (PRI).
"The PRI has been very successful in driving asset managers to address ESG [environmental, social and governance] issues more systematically in their investment processes," he said.
He noted that this was because asset owners were also signatories and therefore had to demonstrate how the principles were implemented.