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UK local government schemes collaborate on framework for stewardship advisory services

Group of pension funds issue combined tender on stewardship, ESG and voting

A collaboration of Local Government Pension Scheme (LGPS) funds in the UK are setting out guidelines for how members of the UK’s pooled pension schemes should approach stewardship advisory firms with the publication of a new framework agreement for the procurement of their services.

The group, led by Norfolk County Council with the support of the Environment Agency Pension Fund and several other local authority pension providers, has issued a joint procurement tender estimated to be worth between £4m and £10m across five separate lots, which cover voting services, engagement services, combined voting and engagement, ESG research and stewardship-related project services.

It is hoped that the framework will raise the profile of responsible investment for all LGPS members and bring quality service providers to the fore, while allowing members to combine their know-how and experience on effective stewardship, particularly given the varying spectrum of uptake throughout the UK’s pension funds.

The new guidelines build on work started by the group of local authorities, collectively known as the National LGPS Frameworks initiative, last year, when funds invited stewardship and ESG service providers to a ‘Concept Viability’ day to inform the creation of the framework and be registered in an electronic database of suppliers.

The latest initiative, known as the Framework Agreement for the Provision of Stewardship Advisory Services, marks a collaboration between the Environment Agency, City of Wolverhampton Council, City of Edinburgh Council, London Borough of Hackney, Bradford Metropolitan District Council, Lincolnshire County Council, Nottinghamshire County Council, Suffolk County Council and Wirral Borough Council.

The scope of the services outlined in the framework is broad but allows for varying views and voting practices at various LGPSs, its authors point out.This includes making provisions for funds that comply with specific responsible investment guidelines, such as the Principles for Responsible Investment or UK Stewardship code, and allows for service providers to vote and engage on the funds’ behalf.

Under stewardship-related services, the tender also outlines the scope for the potential use of due diligence tools for specific asset classes, such as carbon tracking benchmarks, and ESG data analysis.

There is also a recurring call for the identification of opportunities for LGPS funds to collaborate and secure “more cost-efficient and effective” voting and engagement outcomes.

The framework will be opened to 90 LGPS funds in the UK on a preliminary basis, though it will shortly be available to any interested. Tenders and requests to participate are open until July 17, with a finalised agreement with service providers slated for publication from early September.

Though the Local Authority Pension Fund Forum (LAPFF), a collaborative shareholder engagement group which represents LGPS funds managing £175bn, is yet to involve itself in the tender process, a spokesperson said that the forum would decide whether it would use the proposed framework in October, once it had started awarding contracts to service providers.

The LAPFF’s Chair, Kieran Quinn, welcomed the introduction of the framework last year another good example of LGPS funds collaborating on stewardship issues in a cost-effective manner.

It is unclear how the framework will work alongside the new cross-fund advisory group established to advise LGPS funds on responsible investment practices, as was revealed in May. The advisory group is chaired by the Environment Agency Pension Fund’s Head of Pension Fund Management Dawn Turner, with representatives from each of the UK’s six pension pools.