UK pension body NAPF says members should consider vote against firms for poor ESG risk reporting

New guidance from National Association of Pension Funds

The National Association of Pension Funds (NAPF), the UK industry group which represents more than 1,300 funds with more than £900bn (€1.1trn) of assets, has advised its members that poor reporting by companies on the environmental, social and reputational risks they face may warrant a vote against the firms’ annual reports – or even a shareholder resolution.
“A lack of, or poor quality, reporting on environmental, social and reputational risks may warrant, after engagement, a vote against the annual report and accounts, or the submission of a shareholder resolution,” the NAPF says in its new Corporate Governance Policy and Voting Guidelines.
Companies “should consider” the broader strategic risks, including environmental, social and reputational risks, facing the business and “give comment on those in the annual report” the NAPF says. This has been strengthened from last year’s “companies are encouraged” wording.
An example of investors taking action in the UK is the ‘Aiming for A’ initiative spearheaded by church investors and the Local Authority Pension Fund Forum, which is filing climate change resolutions at Shell and BP.
The new guidance is designed to “reflect and push forward current market best practice” and was developed through consultation with NAPF members.

“The policy has been revised to take into account the NAPF’s wider view of corporate governance, which looks beyond the essentials of the code to considersustainability more broadly,” the London-based association says, adding that its ambition is for both companies and shareholders to “move beyond a box-ticking approach and approach their responsibilities in a more considered fashion”.
Changes this year include much greater emphasis on the importance of individual responsibility, and in turn the role of shareholders in ultimately holding accountable the people they have elected to the board.
There’s also what the NAPF calls “a wider view” of risk. “We have highlighted the need for reputational risks, such as a company’s approach to tax management, and emerging risks, such as those from cyber security and climate change, to be appropriately considered.”
On pay, the 36-page report sets out more explicitly the issues investors should consider when they vote on the remuneration policy, the remuneration report, and the chair of the remuneration committee. The NAPF no longer advocates the use of abstentions as a “general approach”.
The NAPF, which is seeking to promote “intelligent, holistic conversations” between companies and investors, also strengthens wording around attending AGMs. “Attendance and speaking at the AGM can also be an effective way of expressing views about the company,” the guidelines state, adding for 2014: “not least when concerted attempts at engagement have failed”.