On the go: Forty-two per cent of fiduciary managers do not actively influence the voting activities of underlying assets or managers when looking at environmental, social and governance issues, new research has revealed.
The findings emerged in a new report by XPS Pensions Group, which surveyed 12 fiduciary managers covering more than 90 per cent of the fiduciary management market, with more than £190bn of pension scheme assets.
While just over two-fifths of fiduciary managers do not actively influence voting activities, it said that they monitor the voting and engagement activity of underlying managers.
The report also highlighted that a third of fiduciary managers do not exclude the lowest ESG-rated funds, and observed that “some firms have not yet developed the capability to report their carbon footprint”.
André Kerr, head of fiduciary management oversight at XPS Pensions Group, said: “With a significant chunk of UK [defined benefit] pension schemes now under some form of fiduciary management, it’s time for trustees to be proactive in engaging with their FMs to ensure that their expectations around incorporating ESG activity are met by their current manager.”
The report encouraged “ESG integration to be within a fiduciary manager’s investment policy documentation”. This is apparently the case for the majority of fiduciary managers, with 83 per cent saying they include ESG integration practices in their investment policy.
More fiduciary managers now have the ability to employ climate-related stress-testing (92 per cent) and scenario analysis, compared with just 30 per cent last year.
When asked if the standard client investment report included a section on stewardship specific to the portfolio, 42 per cent said they did not. The report warned: “For those who are increasingly placing stewardship as a higher priority on their governance agendas, more voting and engagement information will likely be required.”
XPS said it had observed “continued improvement in the extent to which ESG and sustainability practices are incorporated into UK FM solutions”, adding that “industry standards for doing this are also continuously rising and fiduciary managers are having to work harder to prove their credentials in this space”.
Kerr added: “In many cases, the fiduciary manager’s preferred approach may not align with the views of the sponsor, trustees and members.
“It is important that the integration of ESG meets the scheme’s objectives, and is done at the pace of the trustees and not at the pace of the fiduciary manager.”
