Passive managers not voting on €150bn of assets, says pension fund audit

Just 11 full time staff look after governance of £700bn in assets, says LAPFF report.

Some of the world’s biggest fund managers running index tracking portfolios are regularly not voting on about £130bn (€151bn) of the assets they run, according to an audit commissioned by the UK Local Authority Pension Fund Forum (LAPFF) which represents 49 funds with combined assets of over £75bn. Of the passive asset managers surveyed – running a total of about £700bn in assets – most did vote their proxies in the UK and US, but did not do so consistently across the world, according to RI Metrics, the UK-based specialist ESG research company that carried out the audit. Managers responding to the survey were Legal & General Asset Management, State Street Global Advisors and UBS Asset Management. Barclays Global Investors, one of the world’s biggest index managers, declined to participate. The survey found that corporate engagement by index tracker managers with the companies they own was also sporadic. It said companies worth an estimated £350bn of assets were rarely, if ever, approached for discussion on corporate governance or environmental or social concerns. One explanation, the report said, was that governance budgets at passive managers are limited. It identified a total of 11 individuals, albeit with support from voting agencies and active managers, who areresponsible for the implementation of environmental, social and governance (ESG) policies for the entire £700bn of passive assets held in upwards of 3,000 companies across the world. The survey said passive managers tended to be most active in engagement terms either where their RI staff is based or where they hold the bulk of their assets. However, it noted that small cap stocks were rarely engaged and that managers focused their engagement activities on their largest holdings. Emerging markets companies, it found, were typically never engaged, despite being some of the most significant regions for ESG concerns. At the same time, passive managers said they were willing to engage in dialogue with clients on these issues, but had not, to date, seen any real client pressure or demand to increase capabilities or resources. David Sellors, chief operating officer at LAPFF said: “Working with RImetrics has allowed us to construct a thorough picture of individual passive fund manager ESG competencies and practices. Following our meetings with the relevant passive managers, they have now received a clear message that their clients and our members do take the topic of ESG risk management very seriously.”
Link to LAPFF site