Brunel Pension Partnership, the £30bn (€34.4bn) UK pooled fund, has said it will “pre-declare” its voting intentions at companies where there are serious governance concerns.
Brunel, which oversees the investments of 10 local authority pension funds, this week released its responsible stewardship statement in which it said it would operate a “clear process of engagement escalation”, above and beyond its engagement relationship with Hermes Equity Ownership Services.
One example of this “escalation” is that it may choose from time to time to “pre-declare” or publicly announce its voting intentions for resolutions, for example, against the re-appointment of a Chair where there are serious governance concerns not being addressed or in support of a shareholder resolution relating to climate disclosure.
Brunel said: “On such occasions there will have been prior extensive engagement, a clear risk to shareholder value, and the objective will be to raise awareness with other investors to the risks presented.” This type of action would be used “sparingly”.
Some other investors, such as Norges Bank Investment Management, also occasionally ‘pre-declare’ their voting intentions.
Brunel’s 39-page document, which should be read alongside Brunel’s Responsible Investment policy, covers all asset classes and encompasses Brunel’s voting policy, expectations for companies regarding the Sustainable Development Goals (SDGs), climate change, board governance and remuneration, and protecting shareholder rights, amongst a host of other issues.
Another issue addressed is stock (securities) lending. It states that stock lending provides an “opportunity for additional return” but that it “should not undermine governance, our ability to vote or long-term investing”.It goes on: “We will recall stock where required. There may be some instances where we decide not to stock lend, particularly where there are concerns of borrowers deliberately entering transactions to sway the outcome of a shareholder vote.
“Our approach to responsible stock lending is outlined in further detail in a separate policy.”
Asked about this separate document, Brunel’s spokesperson told RI that “this document contains sensitive material and is therefore not available”.
The collapse of construction firm Carillion earlier this year put the spotlight on investor shorting and stock/securities lending and investor stewardship — but stock lending is one of the least understood parts of the market.
At the Annual European Beneficial Owners’ Securities Finance & Collateral Management Conference in September, there was even a specific panel entitled “Dispelling Misconceptions Surrounding Securities Lending and ESG Compatibility”.
Speaking at the event, Roelof van der Struik, Investment Manager, Treasury at the Netherlands’ PGGM Investments, said it is part of PGGM’s fiduciary duty to earn revenue and not miss out on the “basis points” that come from securities lending.
He referred to this as the opportunity cost between the fiduciary duty of earning a return and the responsibility of being an engaged owner
Meanwhile, Brunel – which is one of eight LGPS asset pools – is investing almost £1bn in a multi-factor equity fund run by Legal & General Investment Management (LGIM).
RI will be looking more closely at the UK pension pools’ responsible investment policies in a future issue.