Any other business: Carbon emissions, tax avoidance and executive remuneration are key political issues. But they also matter to many shareholders, who see them as touchstones to the long-term strength of the companies in which they invest.
The sheer size of many pension schemes in asset terms make them powerful voices in how companies deal with these matters. Should trustees make themselves heard in the running of companies their schemes have invested in? And if so, how should they go about it?
The Local Authority Pension Fund Forum is a heavyweight when it comes to shareholder involvement. The forum’s most recent annual report revealed it worked with 84 companies across 16 countries in the past year.
Its annual report states: “Over the course of 2014, LAPFF has engaged on a range of environmental, social and governance concerns that pose a risk to shareholder value.
“In general, the forum engages with companies held by a majority of members.”
Kieran Quinn, chair of Greater Manchester Pension Fund and the LAPFF, said headline-grabbing themes tend to emerge during companies' results and AGM season, but the forum focused on longer-term goals.
“Most of the decisions are taken on the size of the holding because we don’t want our engagement to be reactionary,” he said. “We try to sit down and work out where we need to engage.”
Trustee time pressures
However Catherine Howarth, chief executive of responsible investment campaign group ShareAction, said the part-time nature of a lot of trusteeship was an obstacle to engagement.
“The challenge for trustees is they don’t have the time to look at every vote that comes up, but there’s widespread dissatisfaction when it comes to how asset managers have chosen to vote. [It] might not reflect the trustees’ wishes of the best interest of the member.”
I’d be very surprised if there were any trustee boards who were totally ignoring how companies are run, but it’s slightly secondary to how the fund is performing
Roger Mattingly, Pan Trustees
Howarth said the growth of so-called active ownership was reflected by the launch of the Red Lines Initiative developed by the Association of Member Nominated Trustees and sustainable finance industry group UKSIF, aimed at developing voting guidelines for responsible investment issues to help schemes and asset managers.
“It’s very important that trustees query the voting records of asset managers,” she said.
ShareAction has run training for trustees on the Law Commission’s report on fiduciary duty and on how to spot financial risks related to environmental issues.
“We’re thinking of doing one on aggressive corporate tax planning,” Howarth said.
Mark Hodgkinson, director at governance specialist Muse Advisory, said engagement was largely the domain of public sector schemes.
“Public sector, particularly local authority, seem to be much more to the fore in scaling engagement with business,” he said, adding that “as trustees now are very much non-executive, part-time governors of the fund they tend to see the role of intervention as that of their delegate.”
Roger Mattingly, director at professional trustee company Pan Trustees, said investment managers were making more effort to inform trustees of their engagement activity.
He said: “We do get feedback from managers on all the engagement they’ve been involved in. I don’t think it’s going to get less popular, but I think it’s a slightly slow burner.”
However, he added that despite this, trustees should not forget other important factors.
“I’d be very surprised if there were any trustee boards who were totally ignoring how companies are run, but it’s slightly secondary to how the fund is performing and the strategy it's adopting.”
