The Financial Services Council, a standard-setting and membership body of more than 100 investment organisations, has published a compulsory stewardship code for those of its members who are asset managers.
FSC’s new Internal Governance and Asset Stewardship Standard fills a void in the country’s financial services architecture, according to FSC CEO Sally Loane, who said Australia was until now one of the major economies” without a code and “the only signatory of the Asia Region Funds Passport without one”.
In a statement, Sydney-based FSC said the code aims at ensuring the “long term sustainability of the industry” which manages A$2.7trn (€1.8trn), because asset managers are stewards who can “ensure that responsible management and robust corporate governances practices form the basis of their […] stakeholder interactions.”
Loane added: “Australian fund managers are responsible for managing and growing one of the biggest pools of funds in the world – almost A$3trn – the retirement savings of millions of Australians. The vast bulk of these funds exist because of our mandatory superannuation system.”
The code requires FSC members to disclose on a comply-or-explain basis their stewardship policies.
FSC’s code states: “Rather than dictate the way in which Asset Managers should discharge their stewardship obligations, the Standard instead sets out ‘markers of good practice’. By making these disclosures public we believe good practice will develop organically and change over time as the market evolves.”
Among the “appropriate” disclosures noted in the code are: explanation of how asset managers align their purpose and values with their duty to clients; how they ensure client assets are managed in accordance with their investment strategies and how conflicts of interest are managed.The code applies to FSC’s full members who are asset managers, or with responsibility for managing or overseeing the management of assets of clients, as defined by the FSC.
The FSC clarified that the code doesn’t apply to asset owners who have outsourced the management of all their investments.
Beyond this scope, the code states: “We would encourage asset owners to disclose in accordance with this Code to the extent that it is relevant to them so that the ultimate beneficiaries can better understand how stewardship is conducted for their assets. If an asset owner undertakes internal investment management activities, they should comply with the Standard for at least those assets.”
The code is mandatory from 1 July 2018, thus FSC members must provide sign-off on compliance with the code from the FSC’s compliance year (1 July 2018 to 30 June 2019).
None of the members of the Australian Council of Superannuation Investors, an association of 37 Australian and international asset owners that collectively manage $1.5tn in assets and own on average 10% of every ASX200 company, are among the FSC.
The new code was welcomed by Pablo Berruti, Head of Responsible Investment Asia Pacific for Colonial First State Global Asset Management. In a social media post he said: “Adoption of stewardship principles needs to extend beyond FSC members though, this new standard provides a good framework that the entire industry can use.”
The next step should be, he suggested, the development of an independent platform which facilitates whole of industry adoption and transparency.