Two UK pensions industry associations are recommending that asset owners and investment managers embed stewardship in the heart of their relationships.

The Pensions and Lifetime Savings Association (PLSA) and the Investment Association (IA) today published a joint paper – Investing with purpose: placing stewardship at the heart of sustainable growth  – which looks at issues around pension scheme trustee engagement with investment management.

The report, by a steering group of investment managers, pension funds, investment consultants and lawyers established jointly by the IA and PLSA, sets out several recommendations for each stage of the relationship between investment managers and asset owners from the appointment process right through to the ongoing monitoring of established relationships, to help deliver better returns for savers.

The paper seeks to tackle issues such as a lack of clarity on stewardship expectations, and an overemphasis on short-term performance, and not taking enough account of the stewardship outcomes which risk undermining longer-term sustainable growth.

It recommends that there should be “greater clarity and articulation of stewardship expectations during the manager appointment process”. Pensions funds, the report says, should clearly articulate their stewardship policies and investment managers should set out the stewardship approach for their fund through the appointment process, with pension funds being clear about how the manager’s approach to stewardship will be incorporated into their appointment decision.

Investment consultants should also be clear on how they support the incorporation of stewardship into the assessment process, it adds.

Furthermore, a ‘governing charter’ setting out mutual expectations on the promotion of long-term sustainable value should be established. This charter should cover mutual expectations on the promotion of long-term, sustainable value through:

  • the expected minimum duration of the relationship;
  • performance reviews;
  • ongoing dialogue, communication and disclosures, including how to facilitate client voice;
  • responsibilities to the market and management of systemic risks;
  • culture and governance; and
  • ongoing alignment of stewardship policies.

The report also recommends that an oversight framework should be agreed between asset owners and investment managers which aligns the performance review cycle, the investment and stewardship objectives, and the key performance indicators.

Richard Butcher, co-chair of the steering group and managing director at PTL, said: “Stewardship is essential to building long-term value. Pension trustees and other long-term investors will not succeed in their ESG, climate and sustainability objectives unless they get stewardship right. And they cannot be passive about this.”

Richard Butcher

“Stewardship is essential to building long-term value”

Richard Butcher, managing director at PTL

He noted the recommendations set out in the paper are designed to make the process “easier and more robust” but their success “depends on all parts of the investment chain leaning in”.

Archie Struthers, co-chair of the steering group and independent investment management expert, added: “Both asset owners and investment managers are facing unprecedented challenges in supporting the economy to transition to net zero. True collaboration, with a clear focus on sustainable value will be essential to navigate these challenges going forward.”

He said the recommendations will help both asset owners and investment managers to focus on the practical steps that can be taken at each stage of the relationship from pre-appointment to ongoing oversight.

The report follows the Asset Management Taskforce tasking the IA and the PLSA to bring together the pensions and investments industries towards a common goal – to embed stewardship in the relationship between asset owners and investment managers.

The IA and PLSA set up the joint steering group in 2021, which focused on finding solutions for how the relationship between asset owners and investment managers could be governed in a way that promotes a long-term focus and aligns stewardship expectations.

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