More than lip service – Pensions expert article

Pension scheme trustees have long faced criticism over their stewardship, or lack of stewardship, of their investments. As shareholders they have been accused of being asleep at the wheel when it came to corporate governance. Some trustees of smaller schemes, attempting to take forward responsible investment policies, have been advised that they are simply too small to get involved in setting environmental, social and corporate governance policies. The Law Commission has swung the argument the other way, making clear that trustees in fulfilment of their fiduciary duty should take financially material ESG issues into account when considering their investments.

But even with that new weapon in their armoury, there is still a major obstacle in the way: pooled funds. Of £5-trillion of assets under management in the UK £2.2-trillion is in pooled funds, whose managers have been reluctant to allow the investors to direct how the votes associated with their investments should be cast, arguing that handling multiple instructions is too difficult. Most pension schemes fall into this category.

The Association of Member Nominated Trustees believes that the situation in which the owners of £2.2-trillion have effectively no control over engagement and voting is utterly untenable, and flies in the face of the Law Commission’s report and the countless exhortations from government to take our responsibilities seriously as asset owners. In the absence of any other solutions, over the last two years we have developed our own: Red Line Voting.

Our Red Lines are a set of tightly drawn voting instructions covering the range of environmental, social and corporate governance issues. Pension schemes will be invited to adopt some or all of them as they wish and instruct their fund managers to engage and vote in compliance with them. They are at liberty to vote contrary to the Red Lines but if they do they are required to explain to the client why they did so.

The corporate governance policies are derived from the the consensus we found when we studied the engagement and voting policies of the largest pension schemes. The “E” and “S” policies are based on the principles of the United Nations Global Compact; climate change is at the heart of our environment Red Lines which were drafted with advice from CDP, the Carbon Disclosure Project. CDP has urged pension schemes to support them.

We have not done this alone. We have worked closely with the UK Sustainable Investment and Finance Association and through them have consulted widely among fund managers, proxy voting companies, pensions consultants and many others. We received technical support from the Department for Business, Innovation and Skills. We have received and accepted valuable advice and guidance from all these sources. So we are confident that the Red Lines that we will be launching in a few weeks’ time will be robust and set the standards of best practice.

It has never been more important for all pension schemes to be able to adopt and implement policies covering not just corporate governance but also social and environmental issues. Red Line Voting will bring to the pensions industry the first ever ready-made, easy to understand policy on climate change which we hope will be widely adopted. You can’t bank on long term investment returns if global temperatures rise by 4°c: scientists predict for example that Canary Wharf and Manhattan would go underwater along with Bangladesh, leaving 200-million refugees.

So yes, we should be paying more than lip service to these global issues and be truly active shareholders and Red Line Voting will enable thousands of small and medium sized pension schemes to do so for the first time. We have been overwhelmed with the support and goodwill we have had from many companies and individuals in the pensions and financial services industry in developing what has been described as a major evolution in UK pension funds. Every company and pension scheme that wants to play their part please get in touch.

Biog: Janice Turner FRSA is founding co-chair of the Association of Member Nominated Trustees and leads the Red Line Voting initiative. She is a member of the Department for Work and Pensions Trustees Panel and the Actuarial Stakeholder Group of the Financial Reporting Council.

Janice has been a guest speaker at Harvard Law School's international pensions and capital stewardship conference. Janice has been an MNT of the BECTU Staff Retirement Scheme for about 18 years. At BECTU, the film and broadcasting union, she is Editor of the union's Stage Screen & Radio magazine and is also the union's award-winning diversity officer.

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