Half of UK pension pools miss deadline for responsible investment policy

Confusion about government intentions on RI policy

Four of the UK’s eight new pension pools, representing more than £130bn (€146bn) of assets, have missed a government deadline to develop a responsible investment policy.

This is despite all pools acknowledging an April 1 deadline for a “written Responsible Investment Policy at the pool level” in their pooling proposals which were submitted to the central government in July 2016.

The government department with oversight of town hall pensions in the UK, the Ministry for Housing, Communities and Local Government (MHCLG), confirmed to RI that the deadline had not been pushed forward or withdrawn.

The four pools are the £42.1bn (€47.4bn) Northern Pool, £40.8bn ACCESS, £34.5bn London CIV and £16bn Wales Pensions Partnership.

ACCESS, the pooled pension schemes of Central, Eastern and Southern Shires, has said that instead of a pool-level RI policy, member funds will utilise their respective in-house policies when allocating assets.

The other three pools have been making progress on finalising their respective RI policies, although none were able to provide a timeline or other details for publication.

The Northern Pool has said that its RI Policy is “being worked on”.

According to Owen Thorne, Investment Officer at the Merseyside Pension Fund, the Northern Pool was still carrying out engagement and stewardship activities despite the absence of an RI policy.

Both the London CIV and Wales Pension Partnership are currently consulting their member schemes on their views on RI which will be incorporated into a final policy.

London CIV is currently using a statement setting out its compliance with the UK Stewardship Code in place of an RI policy.

The Stewardship Code “aims to enhance the quality of engagement between investors and companies” and requires investors to disclose how conflicts of interest are managed and voting policy among others.

However, it does not address broader ESG considerations such as climate change, exclusions or divestment.There also appears to be some confusion among the pools regarding the nature of the government’s demands.

A spokesperson for Brunel Pensions Partnership, viewed widely as one of the RI leaders among the pools, said that while pools were asked to share their approach to RI, having an RI policy was not a “rigid requirement”.

Similarly, an investment manager at the Northern Pool was unaware of the April deadline for an RI policy when asked.

Commenting on the story, Anne-Marie Williams, Investor Engagement Manager at campaign group ShareAction, said: “Chairs of individual pension funds within the pools that have failed to publish an RI policy now need to collaborate and take urgent action to ensure their pools step up.”

“ESG issues like climate change are increasingly relevant in the financial risk management of assets and recent regulatory changes indicate the need for investors to take these risks into account without delay.”

When a proposal to pool local authority pensions into “British Wealth Funds” was first mooted in 2015, clear expectations followed that pooled funds would be progressive on ESG issues and stewardship.

A government paper setting out the criteria for pooled funds asked local authorities to “consider the findings of the Kay Review when developing their proposals, including what governance procedures and mechanisms would be needed to facilitate long term responsible investing and stewardship through a pool”.

The Kay Review was a 2012 review into the UK financial sector which concluded that short-termism was a systemic problem within equity markets.

According to the Local Government Pension Scheme Advisory Board (SAB), which coordinates technical and standards issues among the pools, the £259bn public sector pension scheme is among the “largest 10 global sources of capital and can influence behavioural changes that lead to better stewardship by the global asset management community”.

Below is a “Checklist” which compares the pools’ RI policies.

LGPS RI Policy Dashboard .pdf