European pension fund trade body weighs in on EU’s proposed Shareholder Rights Directive

PensionsEurope, the Brussels-based trade body for European pension schemes, has weighed in on the proposed revision to the EU Shareholder Rights Directive, welcoming its intention to promote long-term investment, but also warning that its provision covering disclosure of investor engagement with companies could cause unnecessary red tape and ‘tick-boxing.’

Last spring, Michel Barnier, the former Internal Markets Commissioner, unveiled sweeping changes to the Directive, including a provision that institutional investors like pension funds should disclose their corporate engagement and voting policies each year.

Now, in a position paper, PensionsEurope said it welcomed the aim “to encourage and facilitate” long-term shareholder engagement with investee companies.

Yet it was concerned about the disclosure requirement: “If every vote cast has to be explained, this could create an extra burden for engaged share ownership. It would also be very time-consuming and an administrative burden for the companies.”

It added there needed to be a “balance” between encouraging the right behaviours while avoiding a “tick-box exercise with standard disclosures.” To achieve this, the group suggests that the Directive should merely recommend disclosure.

The group – chaired by Joanne Segars of the UK’s National Association of Pension Funds – represents23 national pension bodies, whose members control assets of around €3.2trn.

Implementation of the Directive will be on a “comply or explain” basis, meaning that if an institutional investor does not comply, it need only say so publicly. How much the investor would have to explain is unclear.

PensionsEurope also criticised the Directive for asking investors to provide information on their contractual arrangements with asset managers.

It said: “Public information on the method and time horizon of the evaluation of the specific asset manager may be competitively sensitive. In addition, the focus may shift from the issue of what fee structure is best for the investors to one most easily justified to the public.”

Finally, PensionsEurope said that while it was important that the Directive require asset managers to report on their performance to clients, it wasn’t necessary for the managers to do this every six months. Instead, annual reporting by the managers would suffice. But the lobby also said such reporting should have “quick and simple identification of the costs borne by the investments, enabling an easy assessment of the net return.”

The proposed directive will now be sent to the Legal Affairs (JURI) Committee of the European Parliament for debate and scrutiny. Whatever emerges from the committee then has to be approved by the Parliament as well as by the EU Council, the representative body for EU governments.