Call for review of rules on pension funds’ investment principles and ESG/stewardship

Regulations on pension funds’ statements of investment principles (SIPs) should be reviewed to make sure the schemes disclose their policies on environmental, social and governance (ESG) risks and their approach to stewardship, says UK campaign group ShareAction.

In the UK, the SIP is a key document that sets out the principles governing how decisions about investments must be made.

It must include the trustees’ policy on choosing investments and asset mix, risk measurement and management, expected investment return, the extent to which social, environmental or ethical considerations are taken into account, and the use of voting rights.

ShareAction cited research suggesting SIPs are often ‘boiler- plate’ giving little meaningful insight. The rules, it adds, were introduced long before the Stewardship Code and don’t reflect the “growing consensus” of the role of shareholder oversight in protecting value.

“There is a strong case for reviewing the regulations which prescribe the content of the SIP to ensure that they keep pace with current best practice, and that – whether through the regulations themselves or through accompanying guidance – schemes are encouraged to provide meaningful and specific insight into their investment approach.”

ShareAction, the former Fair Pensions, says any review should also include a requirement for funds to disclose whether they comply with the UK Stewardship Code, and if they do not, to explain why.It has issued a series of recommendations in a new 55-page publication called Our Money, Our Business, along with a best practice guide.

Among them is a call for explicit legal clarification that fiduciaries can take their beneficiaries’ views into account when making investment decisions.

“Too little attention has been paid to who the real capitalists are”

This is needed, ShareAction says, because of the tendency to apply “outdated ideas” from private trust law to pensions.

The London-based body would also like schemes to be required to disclose a list of their major holdings on at least an annual basis. And occupational pension schemes should have to produce an annual investment report that more closely mirrors companies’ narrative reports.

Another recommendation is for the government to exercise its powers to make disclosing it mandatory for institutional investors to disclose how they vote at companies’ annual meetings. And funds should be required to hold annual meetings, like companies.

“In the debate about responsible capitalism, far too little attention has been paid to the question of who the real capitalists are,” the report states.