Data analysis: Close to half of Unilever Pension Fund’s engagement activity in 2014 centred on corporate governance as wider trends emphasise environmental issues, calling into question the terms used when reporting such activity.
Stewardship is an increasingly important issue for pension schemes as asset owners are being encouraged to be more transparent on things such as voting records on executive remuneration and other corporate governance concerns.
Analysis of engagement reports released by hygiene and personal care company Unilever shows nearly half (46.3 per cent) of its pension scheme’s engagement activity focused on governance issues such as board structure and executive remuneration in 2014.
Source: Unilever Q1-Q4 reports 2014
The scheme engaged with companies 546 times over the year.
Leon Kamhi, executive director of stewardship company Hermes Equity Ownership Services, said it was typical for corporate governance to form a large portion of a pension scheme’s engagement activity.
“Governance can be 40-50 per cent of the objectives we have with companies,” he said.
Governance issues featured in 52 per cent of Hermes EOS’s engagements in 2014, according to its reports.
Last week its sister company, asset manager Hermes Investment Management, announced its intention to vote against the management board of Deutsche Bank, citing concerns around a number of corporate governance issues including the suitability of the bank’s two chief executives.
It stated in a release that it would vote against the “so-called discharge of the members of Deutsche Bank’s management board”.
Classifying ESG activity
Data from Financial Times service MandateWire earlier this month showed a spike in inflows into socially responsible investments, as well as to managers that account for ESG factors, with £1.3bn of inflows from European institutional investors in the first quarter of this year (see line graph).
Source: MandateWire
However there are differences in how investors define certain engagement activities, which could lead to confusion when monitoring schemes’ ESG behaviour.
The Local Authority Pension Fund Forum, for example, only listed one of its 118 instances of engagement as governance. But additionally it reported several instances of engagement over remuneration and board composition – both commonly classed as governance issues by other schemes.
A spokesperson for the LAPFF said: “There’s a wide range of issues [we engage on], but the primary ones LAPFF gets involved in [are] around remuneration, sustainability and climate change.”
Climate change
Kamhi said environmental issues were of growing importance to pension schemes.
“The big one this year is carbon,” he said, noting the forthcoming Cop 21 United Nations Conference on climate change, taking place in Paris in December this year.
Fiona Reynolds, managing director of the United Nations-backed initiative the Principles for Responsible Investment, said the growth of the importance of environmental issues to pension funds was attributable to a number of factors.
She said: “The Bank of England’s recent warnings of the huge financial risks from fossil fuel investments has prompted many asset owners to realign their financial strategies in order to protect their investments from the upheaval associated with the transitioning to a low-carbon world.”
Reynolds added: “Last year, energy secretary Ed Davey warned that investing in fossil fuels is becoming increasingly risky because global action to tackle climate change will curb demand, forcing companies to leave unprofitable reserves in the ground.”
