Pension trustees clash with asset managers over voting and engagement policies
Asset managers are failing to provide pension trustees with details of how they oversee investments, causing problems for pensions as they attempt to implement investment policies in areas including environmental, social, and governance (ESG), according to new research from Dalriada Trustees and Minerva Analytics.
Pensions are under pressure from the UK government to take action on climate change. New rules require larger schemes to report on climate risks from later this year, and also to put together an annual ‘Implementation Statement’ showing that they have complied with their own policies on matters including how they have exercised voting rights and engagements with companies.
Only one third of the 43 asset managers contacted by Dalriada Trustees and Minerva Analytics were able to give details of how they had used their influence in voting as investors, a key way for pension trustees to ensure that they are acting in the best interests of their members.
Another 28 per cent of asset managers provided no information, while 40 per cent of asset managers said there was “no information to report”.
Pensions Minister Guy Opperman commented on the findings, saying: “It’s totally unacceptable that fund managers are unable or unwilling to respond to reasonable requests from pension funds for information on how their votes were cast.”
He added: “Pension fund trustees need this information to fulfil their statutory and fiduciary duties. Asset managers need to step up, use their votes and report efficiently. I will be closely monitoring progress.”
Asset managers also lacked appropriate data on their engagements with investee companies, another key aspect of investment stewardship.
Only 23 per cent of managers were able to provide detailed information on engagement they undertook, a further 19 per cent were able to provide partial information. 42 per cent of managers provided no information on engagement, while 16 per cent said that there was no information to report.
David Fogarty, director at Dalriada Trustees, said that pension trustees are receiving “insufficient information from the asset management community”.
A separate survey by River and Mercantile found that ESG integration is considered a ‘pressing priority’ by 98 per cent of trustees of defined benefit (DB) pension schemes, as they look to the year ahead.
“We are seeing managers marketing funds for their ESG credentials, but they are failing to provide clear evidence of the actions being taken; clearly, this needs to change,” says Fogarty.
Furthermore, David Crum, managing director of Asset Steward Solutions at Minerva Analytics says that by not providing this information, asset managers are “causing their end clients to be non-compliant with their new legal reporting requirements”.
“Most pension schemes in the UK have historically delegated voting and engagement activities to their asset managers, effectively signing up to their managers’ policies. So what is being asked of the asset managers is very straightforward – please demonstrate that you have a voting and engagement policy, and report on the activity undertaken in relation to the policy on behalf of the scheme, for the scheme’s specific reporting period,” says Crum.
“It is almost certainly the case that many asset managers are doing many good things through their voting and engagement policies; however, if the managers are unable to articulate what they have been doing on behalf of their clients, then scheme trustees will need to form their own views as to whether this is an acceptable state of affairs.”
As for why asset managers are not providing information on their voting and engagement, Crum says it may be down to an “under-investment in technology and data services, particularly in the area of linking accounting systems fund information to how assets are held at custodian or sub custodian level.”
“Or it could just be that the ESG and stewardship teams are not suitably connected to the back office to allow for the provision of this information,” he says.
In November, research from the Association of Member Nominated Trustees (AMNT) found that fund managers in the UK were failing to implement the voting policies of pension fund trustees whose assets are held in pooled investments.
“There is now a clash between the asset owners and the fund managers over who should direct the voting policy of the investments,” says Janice Turner, founding co-chair of AMNT.
“This is an untenable situation that requires immediate attention especially given the new, greater regulatory obligations placed upon trustees. The power needs to shift from fund managers to pension funds - the providers of capital - so that their stewardship objectives and priorities can be implemented.”