Campaigning group FairPensions – in the first systematic review of asset managers’ disclosures against the UK’s new Stewardship Code – has slammed some responses as “practically useless”.
“The Code as currently drafted and implemented leaves open the possibility of very weak disclosures which nevertheless claim to deliver compliance,” FairPensions states in the report Stewardship in the Spotlight.
The disclosure of managers’ decision-making is “either non-existent or limited to the provision of practically useless summary statistics” said FairPensions’ Director of Engagement Louise Rouse.
The group has highlighted what it termed “tick-box” and “platitudinous” disclosures by some managers, and has made a series of recommendations, including the setting up of an ‘Ultimate Owners’ Council’, standardised ESG reporting by managers, and mandatory voting disclosure.
One issue is that the quality of voting disclosure differs greatly between managers, hindering analysis by asset owners.
The report ranks 29 large asset managers, with the top five managers named as F&C Asset Management, Baillie Gifford, Newton Investment Management, Hermes Fund Managers and Aegon Asset Management. Only F&C, “makes what we would regard as full disclosure of their voting record”. The worst performers are Morgan Stanley, Wellington management and INVESCO Perpetual.
It is calling on the Financial Reporting Council, the watchdog which oversees the code, to provide a model disclosure format similar to standardised key financial data.
“A common format for voting disclosure by asset managers would significantly improve market efficiency and would assist clients, including pension funds and other institutional asset owners, in theirselection of managers,” FairPensions states. It also sees a strong case for the government making voting disclosure mandatory.
“Overall our findings on voting disclosure suggest that visibility to the ultimate beneficiaries, and accountability for the exercise of shareholder rights employed on their behalf, remains poor.
“To counter this, we recommend that the FRC should create an Ultimate Owners’ Council or similar, to act as a nexus for the interests of beneficiaries in the process of monitoring and reviewing the Stewardship Code, and to ensure that their interest in effective stewardship is recognised and represented.”
It suggests future revisions to the Code should require disclosure on how environmental, social and governance considerations are integrated into the stewardship function of institutional investors.
The FRC welcomed the new report and said it is already planning to look at issues like standardised voting disclosure when it reviews the implementation of the code next year.
“In our view, the early evidence on disclosure should leave the FRC in no doubt that a laissez-faire approach to encouraging robust stewardship will fail to drive the change which is so necessary to protect the assets of ultimate owners and beneficiaries,” FairPensions warns.
“The very poor disclosure practices of so many leading asset managers and the wide variation in the quality of the information disclosed – even after the publication of an industry code designed to address failings that contributed to the financial crisis – indicate that further improvement is needed.”
Merely issuing a statement of compliance with the code “will not provide sufficient comfort for concerned asset owners that their managers have adequately integrated ESG issues and active stewardship into their investment process”.