A new approach to asset owner voting in the UK stock market
Red Line Voting is a new approach to engagement and voting with regard to UK stock market-listed companies. Its purpose is to enable far greater direction from institutional investors in environmental, social and corporate governance. An initiative brought to you by the Association of the Member Nominated Trustees (AMNT).
October 2014
We applied to Rowntree for funding.
January 2015
AMNT and UKSIF hold a joint workshop for AMNT and UKSIF members whichhelped develop the Red Lines.
24th June 2015
AMNT conference approves Red LineVoting.
September 2015
Establishment of the learning and development subgroup.
8th December 2015
Launch of Red Line Voting at the Guildhall of the City of London with the keynote speaker Vince Cable, former Secretary of State for Business. TheAMNT’s Red Lines are the UK’s first comprehensive ESG voting policy free for trustees to download and adopt.
24th April 2016
The AMNT has enjoyed another fantastic year and the 6th full year in the life of the Association which continues to be the largest active Trustee membership organisation.
At the time of writing we have over 700 members, representing over five hundred schemes with assets of over six hundred and seventy billion. We have a recognised and respected position in the industry and will continue to lobby and to provide a collective voice for our members.
17th February 2017
AMNT responds to the BEIS greenpaper on corporate governance reform.
April 2017
We held our yearly AGM.
May-June 2017
We released AMNT/UKSIF initiative on investment consultants. View it here.
February 2018
AMNT provides written consultation followed by giving oral evidence to the Work and Pensions Select Committee in support of the establishment of collective defined contribution pensions.
14th December 2018
AMNT launched Holding Investment Consultants to Account: a guide for trustees. View it here.
April 2019
Consultation with the Treasury on the regulation of actuaries.
29th May 2019
AMNT makes a complaint to the FCA upon publication of AMNT Review into fund managers’ voting policies and practices.
15th October 2019
The Treasury Select Committee writes to the FCA asking what action the FCA had taken so far in response to the AMNT’s complaint.
9th November 2020
AMNT publishes Bringing Shareholder Voting into the 21st Century, a major examination of barriers to effective stewardship and how toovercome them, with support from the Pensions Minister.
AMNT calls for the establishment of a government-led working group to address the archaic voting infrastructure, underinvestment in the stewardship function in fund management; transparency of voting policies and outcomes and scheme-specific voting requirements.
December 2020
The Minister for Pensions and Financial Inclusion Guy Opperman establishes the Taskforce on Pension Scheme voting Implementation in response to the AMNT’s report. AMNT co-chair Janice Turner and the AMNT’s Red Line Voting campaign manager Leanne Clements are members of the taskforce.
10thJune 2021
AMNT updates the Red Lines.
September 2021
Taskforce on Pension Scheme voting implementation publishes recommendations.
25th October 2021
AMNT publishes A 2021 update on fund managers’ voting policies on climate change. View it here.
2021
The FCA sets up the Vote Reporting group to progress the recommendations of the Taskforce. AMNT is invited to be part of the group.
Pension trustees should take into account environmental and social issues that are financially material to their investments, as well as corporate governance matters. This was the conclusion of the Law Commission’s 2014 Report on Fiduciary Duties of Investment Intermediaries.
The Red Lines have been designed specifically to enable those investing in pooled funds to direct the votes associated with their investment: the fund managers may receive Red Line Voting instructions from numerous investors in the fund, but they would be the same instructions making them easier to handle. Of about £5.5-trillion of assets under management in the UK (invested globally) in 2014, more than £2.5-trillion was in pooled funds, so this is a major step forward for UK investors. The greater volume of engagement with the process will also benefit those who already participate fully.
Red Lines identify poor practice which should always be opposed and give specific instructions to fund managers to use schemes’ votes to oppose it. The Red Lines cover a broad range of environmental, social and governance areas where failure to meet reasonable standards poses a risk to the company and its shareholders over the long term. To give just one example: if the world fails to slow the pace of climate change, the outlook for pension scheme investment returns would be catastrophic. So the AMNT believes it is absolutely in the interests of the pension scheme and its beneficiaries to have a robust policy on climate change, which we are confident we have achieved. Indeed, the Red Lines provide the UK’s first ready-made, easy to understand policy for investors on climate change and on social issues.
Trustee bodies will be able to adopt the Red Lines en bloc or, if they choose, a subset of them, that their fund managers will be instructed to follow. If in any particular case managers think it not in the client’s interests to comply with such an instruction they will be free to vote otherwise, provided that they explain to the client why they did so. The AMNT believes this initiative should have no cost to schemes but will enable them better to discharge their responsibilities as asset owners. It will also enable consistent implementation of their ESG policy across all the funds in which they invest. And at this critical time, it will enable pension schemes to actively play their part in the fight against climate change.
The trustee pack provides more information on how to adopt Red Lines, the process involved and presentation material to present the initiative at Board meetings. You can download this pack here.
Download nowTo enable pension schemes to take a more active asset ownership role in becoming more responsible investors.
Pension schemes and other asset owners investing in UK-listed companies are able to actively adopt Red Lines. Find out more information in our downloadable Trustee pack.
It may be that your pension scheme has no policies on environmental, social or corporate governance and instead leaves everything to its fund managers – perhaps you would like your scheme to adopt active responsible investment policies in line with the Law Commission report. Perhaps your scheme has policies covering segregated funds but not pooled funds, or it may have a corporate governance policy but nothing on climate change. There are many different reasons to adopt. To find out more take a look through the Red Lines here.
1. The majority of pension schemes are in practice unable to set an agenda for their fund managers’ engagement with the companies they invest in, nor do they direct how their votes are cast at company meetings. Some have been told they are too small to get involved in this. The AMNT wants to enable all pension schemes, no matter how small, to be able to direct how the votes associated with their investments are cast, and hold their fund managers to account more effectively for their activities on the pension scheme’s behalf.
2. Most small and medium sized pension schemes invest in pooled funds and may have been told that this prevents them from exercising any control over the engagement and voting of the fund managers. Some fund managers have been reluctant to allow investors to direct how the votes associated with their investments are cast, saying that if they received conflicting instructions from multiple investors it would be difficult to manage. Red Line Voting has been developed specifically to overcome these difficulties.
3. There is a lot of work involved in developing appropriate engagement and voting instructions for fund managers. The Red Line voting instructions developed by the AMNT over two years have been drafted after consultation with many others to ensure they meet best practice guidance and are workable.
4. Pension schemes that have a responsible investment policy and invest with several fund managers will have realised that different fund managers have different in-house polices on ESG issues and on voting: while most will normally vote in support of a company position on a matter, others may abstain and still others may vote against. Red Line Voting will enable more consistent implementation of the pension scheme’s policy across all the fund managers it has employed.
The Red Line Voting initiative has the objective of improving the ESG performance of your scheme’s investments and is intended to have positive impact on financial performance. As stated earlier, there is an increasing body of research that shows that companies who rate well against ESG factors outperform others. It is therefore logical for sponsors to support the initiative as this should reduce their costs in the medium to long term.
Yes. Trustee boards should discuss the Red Lines with their advisers before making a decision as to whether implementing the Red Lines is right for their scheme. The AMNT is not authorised to provide investment advice and neither the Red Lines nor this document constitute investment advice.
Yes.
Your scheme investment advisor should be supportive as more and more research is indicating that the best governed companies are more successful.
Your scheme actuary will be less directly affected by the initiative but should be supportive as adoption of Red Line Voting should reduce the risks associated with investments.
Your scheme lawyer should be supportive as the Law Commission have concluded that there is no impediment to trustees taking account of environmental, social or governance factors where they are, or may be, financially material. There is also increasing guidance requiring pension schemes to be active in the area of responsible investment, including the UK Stewardship Code and the Law Commission’s report on fiduciary duties.
If you visit the Support for Red Line Section above, you will see a list of organisations, including the statement from the Government Department of Business Innovation & Skills, in support of this initiative.
No. Ethical investing is designed to show moral disapproval of or support for activities unrelated to financial risks or returns. Most frequently ethical investing employs negative or positive screening to exclude or include investments in particular companies or sectors solely on the basis of that ethical belief. Red Line Voting does not screen in or out any stocks and does not adopt an ethical view on any given investment. It has been designed to apply to all UK-based equity investments regardless of how stocks are selected.
Red Line Voting is all about good stewardship of the companies that your pension scheme already invests in, by setting out the environmental, social and corporate governance policies and activities you expect of them. This is called Responsible Investment.
It is extremely important to ensure that the companies you invest in are well run because failures of governance can lead to pension schemes losing money in both the short and long term. For example, companies that are exposed as being involved in dubious practices or not treating their employees well have suffered reputational damage, consumer boycotts and/or industrial action; others that have broken the law or regulations have been ordered to pay vast fines. These include financial irregularities, health and safety breaches that have caused terrible loss of life or accidents that have caused large-scale environmental damage.
The Law Commission’s 2014 report titled The Fiduciary Duties of Investment Intermediaries states: “It is clearly in the interests of pension funds as a whole to do all they can to promote the long term success of the companies in which they invest. We think that trustees should be encouraged to consider whether and how to engage with companies to promote their long term success, either directly or through their investment managers.”
They go on to state: “While it is clear that trustees may take into account environmental, social and governance factors in making investment decisions where they are, or may be, financially material, we believe the law goes further: trustees should take into account financial material factors.”
You may also have read that, in addition to increasing demands from pension scheme members that their scheme take greater account of ESG matters, there are emerging suggestions that legal action may be taken against pension scheme boards that do not take the risks of climate change into account with the companies they invest in. So pension scheme boards need a way to respond to this growing concern.
No. They are being developed solely for use with companies listed on the London Stock Exchange. There have been many suggestions that it should be extended to other markets so we anticipate their extension to foreign equities and fixed income over time.
Pension schemes can choose to adopt all or some Red Lines. Those who adopt the Red Lines will instruct their fund managers to comply with them. The fund managers are at liberty to vote contrary to a Red Line if in their judgement it is more appropriate in an individual case to do so, but if they do they are required to explain why they did.
Some work is involved in deciding, with your advisors, whether implementing the Red Lines is right for your scheme. The AMNT has tried to keep this work to a minimum by working with as many parties as practicable in the development of the instructions.
Professional advisers to pension schemes adopting the Red Lines may advise that it is necessary to amend the Statement of Investment Principles accordingly. (The law requires the Statement of Investment Principles to set out “the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments”.)
Your fund managers should be required to report regularly on how they have implemented the Red Lines. This could be half-yearly or as frequently as they normally report on the engagement and voting that they currently carry out on your scheme’s behalf.
Since December 2010 all UK-authorised asset managers are required under the Financial Conduct Authority’s Conduct of Business Rules to produce a statement of commitment to the UK Stewardship Code or explain why it is not appropriate to their business model and, if it does not commit to the Code, its alternative investment strategy.
Therefore the asset owner will already be paying for the asset manager’s engagement and voting activities with regard to the funds in which the pension scheme invests. The AMNT does not expect pension schemes to pay any additional fees. In the event of attempts to levy further charges the AMNT asks to be informed of this. Red Line Voting recommendations are to be available in the market from one or more of the proxy voting agencies which should make the assessment easier for asset managers.
The trustee board may wish to consider whether to adopt Red Line Voting just for its pooled funds. It may also wish to consider whether its current policy covers environmental and social matters as well as corporate governance.
Your professional advisers will confirm this. Our research suggests that some small schemes’ contracts with fund managers are silent on the matter of engagement and voting. Others may state that it is delegated. Still others may be different. However a fund manager that wishes to respond to its client’s stated requirements should be happy to comply with new arrangements, and be pleased at the increased concern about environmental, social and corporate governance issues among their clients.
We don’t think this is likely to happen. But if they won’t you can take this into account along with all other factors when deciding what to do with your investments. And if a fund manager refused to comply, the AMNT asks to be informed of this.
By joining with other asset owners to improve the environmental, social and corporate governance of businesses you would be raising the standards of UK listed companies and helping to increase action against climate change, which is the biggest threat to our long term investment returns. You will also hopefully be helping to make the world a fairer, safer and more sustainable place.
Please contact redlinevoting@amnt.org.
These Red Lines should matter to you.
It doesn’t take too long to think of the many major corporate blow-ups in recent years that have had environmental, social or governance (ESG) problems at their heart: huge oil spills, tax avoidance, the numerous fines handed down to banking groups. That’s before you think about the broader economic system meltdowns: dot-com boom/bust, the 2008 financial crisis, libor fixing… Tot up the value destruction to your pension savings as a result of the share price crashes and it’s clear that something should be done.
Red Lines are voting instructions to be used at the meetings of the companies in which the pension scheme invests. If a pension scheme trustee board adopts the Red Lines they instruct their investment managers, that are paid to ‘manage’ your money, to follow the Red Line instructions sent by the trustees or they must explain why they haven’t. This is good asset stewardship in action, and fully in line with the UK government’s investment Stewardship Code.
Importantly, Red Lines are based on well-established UK and global codes across the spectrum of major environmental, social and governance issues from climate change to diversity, tax policy, or human and labour rights.
For example, on social policy, the Red Lines mirror the principles of the United Nations Global Compact, which include the elimination of discrimination in employment, respect for human rights and the effective recognition of the right to collective bargaining. There are Red Lines on equality monitoring, minority ethnic representation on boards and senior management, women on boards, Living Wage, zero hours contracts, recognition of trade unions and breach of labour standards or law.
The governance Red Lines include issues regarding directors, auditors, tax, takeovers, dividends and and executive remuneration.
And if you share the concern about climate change and want to make sure that everything that can be done is being done to reduce this risk, you will be pleased to know that AMNT has worked with CDP, the world’s database of corporate C02 emissions and water-use information, to evolve five clear Red Line environmental policies that have climate change at their heart. It is clear to the AMNT that climate change is a major threat to the long term investment returns of pension schemes, and to their beneficiaries.
You can find more information on these codes and the evolution of Red Lines by browsing this website.
It’s your pensions money and your future. Red Lines are the way you want those assets managed to help you get the best retirement pot possible in the best world to enjoy that retirement in. Write to your pension fund manager or trustees via this site to urge them to adopt Red Line Voting.
To request the adoption of Red Line Voting, you can use our form to directly email your pension fund manager, which outlines what the initiative is and why its important.
A new approach to asset owner voting in the UK stock market by the Association of Member Nominated Trustees
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