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NBIM outlines misgivings on UK Stewardship Code

Influential investor sees ways new Code won’t work

Norges Bank Investment Management, the manager of Norway’s NOK2.9trn (€360bn) Government Pension Fund, has expressed doubts about the UK’s new Stewardship Code.
The Financial Reporting Council, the UK watchdog which oversees the voluntary code, unveiled the list of institutions which have signed up yesterday. The adherents included 12 UK pension funds as well as asset managers and service providers.
“Who is the beneficiary of this code? I can see ways it won’t work,” said Anne Kvam, NBIM’s Global Head of Ownership Strategies, explaining why the fund hasn’t signed up.
Kvam’s words will be of interest, not least because Norges owns around 1% of UK listed equities and its Chief Investment Officer Bengt Enge is based in London.
“We think it’s our right to invest and not be stewards: to just buy a share and just buy it,” Kvam said during a panel discussion at an FRC event marking the launch of the code’s website.
“We’re still sitting on the fence not because we don’t express the spirit of the code,” Kvam said. “Norges’ mandate from the government is a stewardship code in itself.”
She added: “What we decide to be our stewardship platform needs to be applicable to our worldwide holdings.”It would be “irresponsible” for the fund to sign up with thinking about it. It needed to think about where stewardship was most needed among its 8,000 equity holdings. The fund has 400 UK holdings but 1,100 Chinese ones, Kvam said.
Kvam, pointing to the code’s requirement for investors to monitor companies, asked: “Where does that stop?” She was also worried that the code could prompt an unnecessary race towards disclosure, ranking lists and so forth. “We wouldn’t want to be involved in that.”
“Anne’s challenges are fair ones that we have to address,” said FRC Chief Executive Stephen Haddrill. “We’ve got to really sweat it and make a success of it.”
European Union level corporate governance regulation was a topic at the event. The FRC is actively lobbying the Commission ahead of the Green Paper, expected in the first quarter of next year.
FRC Chairman Baroness Hogg said she was aware that investors don’t want to sign up to a plethora of codes and suggested there could be a mutual recognition of codes across EU member states.
Norges’ Kvam was confident that Brussels would bring in something along the lines of the UK code. Haddrill said he would “defend to the death” the UK’s principle of comply or explain.
Hogg added that the FRC is talking to sovereign wealth funds on the Stewardship Code, and that she’d be happy for hedge funds to sign up.