The UNPRI international conference in London in early September was an upbeat affair. It was the biggest it’s ever been with over 1000 delegates attending from all over the world. For the uninitiated, the United Nations Principles for Responsible Investment is an international network of investors who have signed up to six Principles which include committing them to incorporate environmental, social and corporate governance issues into investment analysis and decision-making processes; be active owners and incorporate ESG issues into our ownership policies and practices; seek appropriate disclosure on ESG issues from investee companies; and working together to enhance their effectiveness in implementing the principles.
Responsible investment is gaining ground internationally, though it was obvious at the conference that the UK asset owners involved tended to be the largest or those with an overtly ethical outlook such as churches, charitable trusts, educational institutions and unions. Ordinary company pension schemes with under £1-billion in assets were hard to find.
The Law Commission has clarified the trustees’ fiduciary duty and made it clear that trustees should consider factors which are financially material to the performance of an investment and where environmental, social and corporate governance issues are material, they should be taken into account. Climate change for example is increasingly recognised as the biggest risk to pension schemes’ long term investment. If the rise in global temperates is not constrained to 2 degrees c but instead rises by 4 degrees by the end of this century, some scientists project that Canary Wharf and Manhattan could be under water, as could Bangladesh with its 156-million population. Where would they go?
So it is vital that pension schemes fulfil their fiduciary duty and take all relevant environmental, social and corporate governance issues into consideration But, as reported earlier this year in Engaged Investor, AMNT’s own research has indicated great difficulties on the part of many pension schemes, particularly the smaller ones, in adopting a voting and engagement policy covering ESG issues. This has much to do with the fact that they invest in pooled funds. The fund managers are reluctant to allow multiple investors to give voting instructions on their investments in these funds as they believe that it is too difficult.
So AMNT has spent two years developing a new approach to voting on the UK market, called Red Line Voting, which consists of a set of tightly drawn voting instructions covering the range of ESG issues. Climate change is at the heart of the environmental Red Lines. Pension schemes will be invited to adopt some or all of them and then instruct their fund managers to engage and vote accordingly. Because all Red Line instructions are the same instructions, this makes it far easier for pooled funds to handle.
Having presented our Red Lines to our AMNT conference in summer and secured their approval, we are now working hard with key players in the financial services industry fine tuning the explanations and guidance that accompany each Red Line. In a few weeks’ time we will be publicly launching them and from that point they will be free for anyone to download and use. AMNT members can log-in and download them from our website.
We urge every pension scheme that currently has no responsible investment policy, or no environment or social policy, to consider adopting Red Line Voting. The AMNT believes that responsible investment is the responsibility of all pension schemes. It is our responsibility to provide active, responsible stewardship of our investments: AMNT is about to make it easier for pension schemes to achieve.
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