Pension fund-backed ‘long-term/sustainable’ model mandate set for formal launch

International Corporate Governance Network project

The $18trn (€13.6trn) International Corporate Governance Network’s ‘model mandate’ project endorsed by some of the world’s most prominent responsible institutional investors will be formally launched later this month. The initiative could cement long-termism, environmental, social and governance (ESG) requirements and ‘systemic responsibility’ into the contracts between some of the world’s largest asset owners and managers.
Backers include major institutions such as Dutch pension giants APG and PGGM, Norges Bank Investment Management, US pension fund CalPERS (the California Public Employees Retirement System) and Canada’s Ontario Teachers’ Pension Plan (OTPP), said Paul Lee, the director of Hermes Equity Ownership Services who chairs the ICGN’s Shareholder Responsibilities Committee.
The model mandate, which covers all asset classes, will be formally unveiled at the ICGN’s London conference on March 19, Lee told a session at the National Association of Pension Funds’ Investment Conference in Edinburgh yesterday (March 8).
“We as asset owners need to get asset managers thinking like asset owners,” he said, adding: “At the moment risk tends to be analysed in terms of deviation from the benchmark – the risk is for the fund manager but not asset owners and we need to change that.”
Referring to ESG considerations, he said: “They’re not non-financial issues, they’re not ‘yet’ financial. We just aren’t very good at putting a number on them, which is why it tends to get ignored.” The model mandate’s clauses can be inserted into agreements with managers or used as a negotiating point (previous RI coverage Ellison, the former chairman of the NAPF called for the ICGN to liaise with the Investment Management Association (IMA) to create a standardised fund industry agreement.
Lee said frustration with the IMA’s standard was one of the drivers behind the creation of the model mandate. He said: “That’s the gap we are seeking to fill.” He added the IMA hasn’t endorsed or commented on the ICGN model mandate so far.
Elsewhere, Anita Skipper, director of corporate governance at Aviva Investors said she is proposing a much simpler report to clients of the firm’s shareholder voting and engagements with companies.

On the UK’s Stewardship Code, Skipper said it was far too early to know how it has made a difference: “There’s been no real behavioural change from our pension fund clients,” she said. “Pension funds say they want reporting, but they’ll set it up and lose interest after that”. She said managers hadn’t helped trustees by providing voluminous voting reports.

“We need to get asset managers thinking like asset owners”

She is proposing that Aviva reports to its mainstream clients the same way it does to its SRI clients, by highlighting a smaller number of companies and going into detail about the issues. She called for “less reporting but more focused reporting about the difference you make”.
Skipper also said the Financial Reporting Council would probably include tougher language on how investors use proxy voting agencies when it updates the Stewardship Code later this year.