Pension schemes are not paying enough towards stewardship programmes, according to Will Martindale, former chief sustainability officer of Anglo-Dutch investment house Cardano.

In a recently authored book, Martindale, who also spent seven years as the Principles for Responsible Investment’s head of policy and research, argued that – despite the industry’s emphasis on engagement over divestment – asset owners do not have the budget to meaningfully contribute to asset managers’ stewardship efforts.

He laid out a case in which a defined contribution pension fund charges 50bps in annual fees, of which 20bps might be allocated to administrative costs like call centres, running an office and communicating with beneficiaries.

“That leaves 30p for every £100 I invest that is spent on the investment strategy,” Martindale said, adding that this often has to cover the cost of hedging investment risks on a portion of the portfolio, and paying an asset manager to run the remaining money through a growth strategy.

“Although the asset manager may say that you’re getting stewardship, in practice, we can see from the level of fee, it’s unlikely the pension fund is contributing much to the asset manager’s stewardship programme,” he suggested. “This is the challenge facing pension fund trustees. Where can you make savings? On stewardship.”

Martindale argued that “stewardship suffers from the tragedy of the commons” – using pension savers’ money to engage with companies to increase value for all their shareholders can be hard to justify, especially for pension schemes in low-income sectors.

“My experience is that stewardship is a fraction of a pension fund’s fee basis and the highest impact stewardship activities (e.g. systemic stewardship and policy engagement) are the least funded within that,” he continued.

Instead, the lion’s share is spent on portfolio managers engaging on governance issues, simply getting hold of information, or paying for proxy-voting activities.

The book, titled ‘Responsible investment: An insider’s account of what’s working, what’s not and where next’, comes out electronically this week and also includes comments from Claudia Chapman, who recently stepped down as head of stewardship for the UK’s Financial Reporting Council to join State Street Global Advisors.

“Everyone is always lamenting how little resource for stewardship there is,” Chapman told Martindale. “But if investors are as committed to their stewardship objectives as they say they are, and we believe stewardship to be an effective tool to achieve change, then the profession needs to be better resourced.”

“More people with the right training, skills, knowledge and experience,” she continued.

Sustainable finance veteran and head of investment content at Willis Towers Watson, Roger Urwin, is also quoted, saying: “We are not sizing or shaping our stewardship effort at all well and we will need to increase our resources and focus for the sustainability challenge ahead.”

“We invest massively in portfolio management resources picking stocks and asset classes – where much of the effort is the negative sum in alpha. And we don’t invest enough in stewardship where the value is a positive sum, particularly the systemic stewardship at the industry and public policy level,” Urwin said.

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