European pension lobby group backs EU stewardship code

Group representing €3.5trn responds to European governance proposals

The idea of a pan-European stewardship code – along the lines of that recently introduced in the UK – has been welcomed by the European Federation for Retirement Provision, the representative body for national pension institutions.
“The Commission could consider developing an EU level stewardship code containing a limited number of high-level principles on engagement, voting and disclosure,” the EFRP stated in its response to the European Commission’s recent Green paper on Corporate Governance in Financial Institutions. This document, whose consultation period ended this week, was aimed mainly at the banking sector.
The EFRP – which represents 26 member associations which oversee around €3.5trn of assets – argues this would prevent a proliferation of codes across Europe. “Pension funds manage geographical diversified investment portfolios and it would be very tedious having to sign up to 27 sets of stewardship principles.”
Although it supports the Commission’s aim of encouraging shareholder engagement with companies, the Brussels-based body is not in favour of any form of compulsion. It argues that pensionfunds and their asset managers should be able to decide if the benefits of active ownership outweigh the costs.
As for mandatory disclosure of voting at company meetings, the EFRP states: “Public reporting of voting activity adds costs, but provides no evidence of effective engagement.”
The EFRP points out that pension funds’ assets, while substantial, only amount to 15% of the market capitalization of European securities markets – and that funds often own less than 1% of a company’s equity. It claims that in many European countries the influence of shareholders in listed companies is “deliberately kept at bay by governments”.
The body calls for more balanced composition of the board of directors and emphasises the separation of the CEO and chairman functions is “essential”.
The group would like to see better links between investors and financial regulators, giving shareholders “an open channel” for any concerns; it welcomed the suggestion that the rules about investors ‘acting in concert’ should be clarified in the relevant EU directives.