UK calls on local government pension schemes to sign up to Stewardship Code

Guidance stresses funds shouldn’t pursue investment “boycotts”

The UK government has called on administering authorities of Local Government Pension Schemes (LGPS) to sign up to the Stewardship Code.

“Administering authorities should become Signatories to the Code and state how they implement the seven principles and guidance of the Code, which apply on a “comply or explain” basis,” the government’s Department for Communities and Local Government states in new guidance.

The 90 administering authorities are being encouraged by the government “to consider the best way to engage with companies to promote their long-term success, either directly, in partnership with other investors or through their investment managers, and explain their policy on stewardship with reference to the Stewardship Code”.

To further stewardship, schemes “should strongly encourage” their fund managers to vote their shares and consider appointing an “independent proxy agent” to monitor their managers’ voting activity.

While the guidance states that the law is generally clear that schemes should consider any factors that are financially material to the performance of their investments, including social, environmental and corporate governance factors, it goes on to say that the government has made clear that using pension policies to “pursue boycotts, divestment and sanctions” against foreign nations and UK defence industries are “inappropriate”.The schemes “should not pursue policies that are contrary to UK foreign policy or UK defence policy”.

LGP schemes “should not pursue policies contrary to UK foreign and defence policy”

And it says that although schemes should make the pursuit of a financial return their “predominant concern”, they may also take purely non-financial considerations into account — provided that doing so would not involve significant risk of financial detriment.

The advice is how to prepare an investment strategy statement as required by Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.

Elsewhere in the UK, Parliament’s Energy and Climate Change (ECC) select committee is to be abolished following the annual party conference season, according to reports. The business, innovation and skills (BIS) department to take on the energy brief. It comes as new Prime Minister Theresa May is set to make responsible capitalism a theme of the Conservative party conference next month, according to the Financial Times.