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Pension Funds – The FRC wants to hear from you!

15 March 2018

Jen Sisson, Head of Investor Engagement
 

Building better outreach among pension funds is a major goal for the FRC. We want to hear more from asset owners about their views of the FRC’s work, but particularly as we review the UK Stewardship Code.  At the PLSA’s investment conference in Edinburgh I had some fantastic conversations with members of the pensions industry.  Below I have set out some of the key issues we want to talk to pension funds about.
 
Stewardship is all about promoting the long-term success of companies in such a way that the ultimate providers of capital also prosper. Effective stewardship benefits companies, investors and the economy. So, this is a really important responsibility for pension funds on behalf of their beneficiaries.
 
The FRC would like more asset owner signatories to the Stewardship code. Getting engagement in Stewardship issues right across the investment chain is critical to the success of the Code.  But we understand that there are competing issues that pension fund trustees need to balance, and that there is often limited time available to do so.
 
Stewardship is more than just voting. Activities may include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration.
 
The Stewardship Code asks institutional investors to; publicly disclose their policy on how they will discharge their stewardship responsibilities, have a robust policy on managing conflicts of interest in relation to stewardship, monitor their investee companies, establish clear guidelines on when and how they will escalate their stewardship activities, be willing to act collectively with other investors where appropriate, have a clear policy on voting and disclosure of voting activity and to report periodically on their stewardship and voting activities.
 
The important thing is to consider what the real long-term investment risks are, and engage on those issues that might be material.  Those may include capital allocation, company board structures, environmental issues, human rights issues and many others. Thinking about materiality is a good way to approach these issues, because in the long term a wide variety of issues, including many ESG issues will have a significant impact on investment returns.
 
There has been a step change in interest and action on long-term investment and stewardship issues in recent months, and Stewardship Codes from around the world are starting to take steps forward to develop and enhance the expectations of good stewards.  This year the FRC is undertaking a review of the UK Stewardship code and we are considering a range of possible ways to enhance the existing code. 
 
Some of the questions we are thinking about include: Should we give more clarity on the expectations of those investing directly, like asset managers, and indirectly, like many pension schemes?  Should the Stewardship Code more explicitly refer to ESG factors and broader social impact? If so, how should these be integrated and are there any specific areas of focus that should be addressed? Should the Code cover a broader range of asset classes?
 
One thing that is really important for pension funds is the question of reporting on Stewardship activities - how can the Code encourage reporting on the way in which stewardship activities have been carried out so that pension funds are able to engage effectively with their asset managers?
 
As we move through the process of reviewing the UK Stewardship code we want to hear from you.  If you would like to be part of the discussions, please get in touch: j.sisson@frc.org.uk

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