A rising trend for pension funds to incorporate stewardship responsibilities in their mandate searches is expected to continue on the back of new industry measures and rising shareholder activism.
A survey by the Pensions and Lifetime Savings Association Link, the umbrella body of pension funds in the UK, found that nearly 68% of pension funds were setting out stewardship responsibilities in their mandates to investment managers in 2015 – a jump from just 38% in 2013.
“We continue to see strong interest from pension funds in the area of stewardship and we expect and hope the number of pension funds including stewardship criteria in their mandates will continue to rise,” said Luke Hildyard, policy lead for stewardship and corporate governance at the PLSA.
It surveyed 60 UK pension funds with a total of at least £260bn in assets under management.
The launch of the Stewardship Code in 2010 which sets out the principles of effective stewardship by investors, the Kay report which aims at promoting long term investors’ engagement with investee companies and the recent UK Investment Association’s Productivity Action Plan are just some of the recent measures that have shone a spotlight on good governance.
The PLSA also launched the Stewardship Disclosure Framework in 2013, which provides greater transparency around the stewardship policies and activities of those asset managers who aresignatories to the UK Stewardship Code. Stewardship Accountability Forums launched in 2014 provide pension funds the opportunity to follow up on the information provided in the frameworks.
“All these activities have helped to encourage interest in good governance – the issue of executive pay in UK companies has also attracted a lot of attention amongst pension fund investors recently,” Hildyard added.
Many UK blue-chip companies such as BP, Reckitt Benckiser, WPP and Anglo American have come under fire recently over pay policies to their executives.
Asset managers said they are also seeing increased interest in stewardship issues from pension funds.
“We are definitely seeing more request for proposals (RFPs) around ESG issues and our approach to voting,” said Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management.
However, Sarah Wilson, chief executive of advisory firm Manifest, argues that pension fund trustees should be doing much more.
“Pension fund trustees need to be far more challenging of their fund managers and they need to be asking much more difficult questions of their fund managers,” Wilson said.
“The fact is that trustees are struggling with much more pressing issues such as deficits, employer covenants, trustee cuts etc. that stewardship may not be a top priority for many of them,” she added.
Save the date: The 6th annual ESG in Manager Selection & Monitoring seminar will be held in London on Wednesday 12th October 2016.
Full details available soon. For further information email to email@example.com