Pension trustees, fund managers clash on ESG votes

UK pension fund trustees are involved in a major clash with fund managers over voting on vital ESG issues – with the UK government now saying it will set up a working group “to bring about real change” on the issue.

The Association of Member Nominated Trustees (AMNT) has produced a report called “Bringing shareholder voting into the 21st Century: An examination of the barriers to effective stewardship and how to overcome them.”

The report said the working group should address “the overly complex and archaic voting infrastructure; underinvestment in the stewardship function in fund management; and transparency of voting policies and outcomes.”

The AMNT has urged trustees to develop ESG policies and “use them as a benchmark to hold fund managers to account.”

The association said investment consultants should “hold fund managers to account for their unwillingness to accept client voting policies” and that this “could include downgrading the fund manager.”

Janice Turner, founding co-chair of the AMNT, said: “Fund managers whose policy falls far short of what is needed have refused to accept their clients’ policies, and failed to align their own with that of their clients. 

“There is now a clash between the asset owners and the fund managers over who should direct the voting policy of the investments. 

“This is an untenable situation that requires immediate attention especially given the new, greater regulatory obligations placed upon trustees.  

“Power needs to shift from fund managers to pension funds, and I am confident that the proposed working group can help to make this a reality.”

In the report, Minister for Pensions and Financial Inclusion Guy Opperman said: “I want to bring real change on the issue of voting.

“In 2019, I made changes to the law to clarify trustees’ fiduciary duties in relation to environmental, social and governance issues and to improve their stewardship and voting practices.

“It was my intention to remove some of the – real and perceived – barriers to trustees taking action in these areas.

“I also legislated to require trustees to report on how they are implementing their policies.

“I did not want another ‘tick box’ exercise in which trustees or, perhaps more likely, their advisers, go through the motions of compliance. I wanted trustees to truly engage with their duties as fiduciaries and with their rights as shareholders.

“It is therefore a disappointment to me that trustees still face challenges when seeking to exercise their rights to vote in line with their voting policies.

“In particular, where trustees are using pooled fund arrangements that otherwise represent cost-effective options for investing members’ money.

“In my view, this is not simply a frustration for trustees who face obstacles in complying with the spirit of the law.

“It is also a frustration for those of us who care about the role institutional investors play in society, investing ordinary people’s hard-earned savings in the real economy around us.

“There is such power in greater engagement by pension schemes with the companies and assets in which they invest.

“However, as noted in this timely report, there is sometimes a gap between what pension trustees wish to do and their ability to make it happen.

“As a policymaker, I can reflect on whether we have asked too much of pension trustees.

“But I do not believe this to be the case.

“We have held trustees to a standard commensurate with their role in the financial system, and in society more widely.

“However, they are not the only actors in the investment chain – fund managers also need to step up and to play their role, for their clients.

“This report identifies where the real barriers lie and possible solutions.

“I therefore welcome its contribution to this important discussion – and I look forward to working with the Association of Member Nominated Trustees.

“I agree on the recommendation for a working group to develop solutions that will unlock further progress on stewardship and engagement.

“I am determined we are going to bring about real change on this issue.”

Leanne Clements, campaign manager for Red Line Voting: “We are pleased that the Minister for Pensions and Financial Inclusion has supported our report and its recommendation to create an industry working group. 

“His commitment to address the issue of trustee voting will create the impetus that the industry needs to develop real solutions to this problem. 

“Fund managers may currently be struggling to meet the demand on client reporting requirements given increased regulatory requirements. 

“We hope that this report, along with this increased demand, will be the wake up call the industry needs to realise that their business models must change — and investment must be made — in order to accommodate this new reality. 

“Innovation in this area is sorely needed”.