The UK pensions minister has backed a recommendation for a government-led industry working group to be set up to find ways to allow trustee voting policies to be implemented by fund managers in pooled funds.
The recommendation comes from the Association of Member-Nominated Trustees (AMNT), which today published a report arguing that the reported barriers to split voting in pooled funds are not insurmountable.
“Put simply, asset owners’ policies could be implemented by fund managers if there was the will to do so,” it said, noting that some fund managers have already been doing this for some clients.
Although a lack of will among fund managers was “a key driver for inertia in addressing the issue”, the AMNT also said long-term underinvestment in the voting system was part of the problem.
Its main recommendation, it said, was for the creation of a government-led industry working group – with a majority voice for asset owners – to address issues such as “the overly complex and archaic voting infrastructure”, “underinvestment in the stewardship function in fund management,” and transparency of voting policies and outcomes.
The report, which was authored by academic Iain Clacher, also identified shorter-term recommendations, such as that asset owners should benchmark their fund managers’ voting policies against their own and that investment consultants should hold fund managers to account for not accepting client voting policies.
Another recommendation was that fund managers at a minimum report against client voting policies on a comply-or-explain basis, “so that asset owners can make more informed decisions regarding the degree of alignment between themselves and their fund managers”.
“I agree on the recommendation for a working group to develop solutions that will unlock further progress on stewardship and engagement”
Guy Opperman, minister for pensions and financial inclusion
The AMNT’s report comes as trustees face rising stewardship expectations, including from regulation.
Writing in the foreword to the AMNT’s report, Guy Opperman, minister for pensions and financial inclusion, said the government had “held trustees to a standard commensurate with their role in the financial system, and in society more widely”, but that fund managers also needed to step up.
He said he welcomed the AMNT report’s contribution and looked forward to working with the body.
“I agree on the recommendation for a working group to develop solutions that will unlock further progress on stewardship and engagement,” he said.
A spokesperson for the Department for Work and Pensions (DWP) said further details would be announced in due course.
The AMNT has been campaigning on the issue of split voting in pooled funds since it launched its ‘Red Lines’ in 2016, a voting initiative intended to empower trustees invested in pooled funds to send a strong signal to investee companies on environmental, social and corporate governance (ESG) issues.
“There is now a clash between the asset owners and the fund managers over who should direct the voting policy of the investments,” alleged Janice Turner, co-chair of the AMNT. “This is an untenable situation that requires immediate attention especially given the new, greater regulatory obligations placed upon trustees.”
The AMNT’s report comes as the Pensions Policy Institute today called for participation in a survey intended to inform “ground-breaking research which will break through the confusion ESG and climate change to identify actual barriers faced by schemes and practical policy solutions for helping schemes to engage in a more meaningful way”.
The Law Commission has been asked by the DWP to publish a scoping study on the system of “intermediated securities”. In a call for evidence launched last year, it said technology could be used to improve voting processes linked to pooled funds.
Scottish Widows to divest £440m on ESG risk grounds
Scottish Widows has adopted a new exclusions policy that will see it divest at least £440m (€481m) from companies failing to meet certain ESG standards or norms.
The exclusions will be applied across the insurer’s investment, life and penison funds and its own investments, with plans to extend it to external pooled funds in the future.
The new exclusions policy targets companies that derive more than 10% of their revenue from thermal coal and tar sands, manufacturers of controversial weapons, and violators of the UnitedNations Global Compact on human rights, labour, environment and corruption – unless the size and type of investment meant the insurer could influence positive change in companies’ business models.
Scottish Widows believes the move to be the most far-reaching exclusions policy by a major pensions provider.
“Our exclusions focus on companies we believe pose the most severe investment risk due to the nature of their businesses, which can’t be addressed through engagement,” said Maria Nazarova-Doyle, head of pension investments at Scottish Widows. “The growth of these ‘at risk’ companies is likely to be severely limited by future regulations and the changing views of customers and investors, leading to significant falls in their share prices.
“We’ve worked hard to implement our exclusions across our fund range without limiting this initiative to our actively managed funds. We’re excluding investments from the index trackers which underpin our flagship multi-asset funds, too.”
In August Scottish Widows announced a £2bn allocation to a new BlackRock climate transition fund that it helped design.
NEST reappoints State Street
NEST Corporation, the trustee body of auto-enrolment provider NEST, has reappointed State Street Corporation to provide investment servicing solutions.
State Street will provide global custody, fund accounting, performance measurement, compliance monitoring, asset allocation rebalancing and unit dealing services, managing the movement of members’ contributions from the scheme administrator to the appropriate fund managers.
“On the back of a very successful period, we’ve decided to take up the option of extending our fund administration contract with State Street for a further five years,” said Henk Michels, director of fund administration at the defined contribution master trust.
“This is an exciting time for NEST. We continue to expand out into new assets, including private markets such as unlisted infrastructure equity, in the pursuit of the best risk-adjusted returns for our members.”