Stewardship Code allows ‘weak disclosure’, report finds

The publication, from lobby group FairPensions, says the code has driven some engagement with corporate governance, but in its current form “leaves open the possibility of very weak disclosures which nevertheless claim to deliver compliance”.

The Stewardship Code was published in July and calls on asset owners and asset managers to take an active role as shareholders . The code calls on institutional investors to publicly disclose their stewardship responsibilities and monitor the companies in which they invest.

The code followed accusations of the pensions industry acting like “absentee landlords” and not taking an active role in the companies in which they invest.

The FairPensions report recommends the FRC to create an “Ultimate Owners’ Council” on behalf of beneficiaries to monitor the Stewardship Code, and set an outline policy and minimum amount of disclosure.

FairPensions chief executive Catherine Howarth (pictured) said the organisation was quite concerned about the “quality of disclosure in a number of key areas”, despite “incremental improvement”.

“We really aren’t there yet in terms of where we really need to be with this industry. But we’re getting there” she added.

It further calls upon the government to make use of its powers to introduce mandatory voting disclosure; a discussion which FairPensions says is ongoing with the Department for Business, Innovation and Skills.

The report concludes comprehensive public disclosure of voting is “fundamental” to accountability through the “investment chain”.

In the findings, 17% of asset managers surveyed did not publicly disclose their policy for environment, social and governance (ESG) issues, and 41% of managers did not disclose engagement activities.

It calls upon asset owners to include Stewardship Code compliance as a criterion in manager selection, and to make numerous disclosure requests of their current managers.

Last month the £4.7bn Merseyside Pension Fund amended its Statement of Investment Principles (SIP), saying it would give preference to asset managers who have signed up to the code as well as to the UN Principles of Responsible Investment.

The SIP states: “It is a core belief within the investment philosophy of Merseyside Pension Fund that ESG factors can affect investment performance and, therefore, should be a feature of investment analysis and management.”

The scheme also announced it would be publishing an annual Responsible Investment Review, outlining its progress as well as disclosing its voting record and reviewing the governance performance of its asset managers.

“If that becomes the standard of how investment mandate agreements work, then I would be more optimistic about a step change in the Stewardship Code,” said George Dallas, director of corporate governance at F&C Investments.

“If the ambitions of the initiative are to really take hold, we’re going to have to have more assets under management committed to the engagement process so companies will take it more seriously.”

So far, of the 111 signatories to the Stewardship Code, just 11 are pension schemes. They tend to be either public body schemes or large, well-resourced schemes, such as Railpen, BT and British Airways.

But last month, the National Association of Pension Funds revealed 25 schemes had written to it, outlining their intent on signing the code .

For Penny Shepherd, chief executive of UKSIF – the sustainable investment finance association – there are two types of schemes which should be implementing the Stewardship Code into the investment mandates.

The first is public body pension schemes as investment mandates are a form of public procurement and UK local authority pension schemes are significant asset owners.

The second group is schemes of companies who are corporate responsibility leaders. “These companies should be demanding good stewardship from their pension schemes,” she said. “They can’t tell them what to do – but they should be encouraging.”

The FairPensions report, which scores 29 asset managers based on review of information available on their websites, showed the top performers were F&C Asset Management (scoring 95%), Baillie Gifford (90%) and Newton Investment Management (88%).

The bottom three were Morgan Stanley, Wellington Management and Invesco Perpetual.

But the methodology of the report has been called into question. “It’s a very misleading report because it is not based on any formal information at all,” one asset manager told schemeXpert.com .