Calls for UK Stewardship Code to go further on member engagement

Analysis of pension fund stewardship reports shows that few are 'actively engaging in ongoing dialogue with members'.

The UK’s Stewardship Code needs to go further to ensure that the voices of pension fund members are heard after analysis of asset owner stewardship reports showed “few are actively engaged in ongoing dialogue with members”, according to Tumelo.

The UK-based fintech, which allows pension fund members to submit advisory votes on resolutions at companies in their portfolio, analysed the stewardship reports of 38 signatories to the code and found that just 11 had a form of structured, direct engagement with fund members, such as an annual survey or member panel.

The Stewardship Code is a voluntary standard for stewardship reporting that is regulated by the UK Financial Reporting Council (FRC). It was significantly strengthened in 2019 and the FRC has strict standards for membership – a third of applicants were rejected in the October 2021 application round.

Under Principle 6 of the code, signatories are required to “take account of client and beneficiary needs and communicate the activities and outcomes of their stewardship and investment to them”.

Georgia Stewart, Tumelo’s CEO, said that in some cases its analysis showed “no evidence of reporting to or engagement with member beneficiaries”. In other cases, she said there was a “transmit-only mindset”, with little effort made to engage in dialogue with members, gather feedback or measure outcomes.

The usefulness of stewardship code reporting for fund beneficiaries has previously been questioned by pension schemes themselves. Morten Nilsson, CEO of the BT Pension Scheme, the UK’s largest private sector pension fund, said in May last year that its report was “not helpful… at all” for its members and that it put “a lot of effort into sending something effectively to the regulator”.

The FRC had not responded to a request for comment at the time of publication.

In other stewardship news, the regulator is inviting asset owners and investment consultants to participate in a new project looking at how they are using stewardship reports produced by asset managers, ahead of a review of stewardship policy by the Department for Work and Pensions in 2023.

UK pension schemes are increasingly pushing their managers on stewardship activities, with pensions and savings giant Scottish Widows telling its managers to sign up to the Stewardship Code or lose its business, and local government pension scheme pool Border to Coast stepping up its monitoring of asset manager voting patterns in recent weeks.