Opperman urges asset managers to increase stewardship practices

In a letter published on Wednesday, Guy Opperman questioned these companies on their progress in implementing the recommendations of the Taskforce on Pension Scheme Voting Implementation, published in September.

Specifically for fund managers, the report called on these companies to offer pooled fund investors the opportunity to set an expression of wish regarding voting undertaken on the assets within the funds in which they invest, and that asset managers and their trade bodies should sign up to the principle of answering all reasonable requests on their voting and stewardship activity.

On the first suggestion, Opperman said that he sees “no reason why trustees should not be able to set an expression of wish if they want to do so”.

I see no reason why trustees shouldn’t be able to determine their own high-level policies – on areas such as climate risk management, diversity or pay – and find an asset manager to implement it

Guy Opperman, DWP

He also noted that the Financial Conduct Authority has stated there is no regulatory barrier to trustees issuing an expression of wish on their voting preferences, and that no breach of fund rules occurs where a fund manager takes the expression of wish into account when voting.

“I would urge asset managers to join those already bringing forward products that do not require trustees to switch to a segregated mandate in order to express their wish on voting; and I welcome hearing your plans,” Opperman noted.

The pensions minister also warned that if adoption of this recommendation by managers is slow, “then the issue should be referred to the Law Commission to propose structures that give owners the necessary rights”, as suggested by the TPSVI.

Managers told to increase reporting

On the second recommendation, Opperman reminded companies that they should not work on the basis that reporting via the Pensions and Lifetime Savings Association template, abiding by the Stewardship Code and compliance with FCA rules will be sufficient to answer all reasonable requests on their voting and stewardship activity.

The taskforce also noted that asset managers should ensure links to all current voting policies are contained within their stewardship reports to clients, with the pensions minister welcoming an update from companies on their plans in light of this recommendation.

The TPSVI was set up in December last year to address problems in the voting of equity shares by pension schemes, with the aim to encourage more and better-quality voting by these asset owners, in part by encouraging them to set voting policies.

In a statement, Opperman argued this intervention is “about giving pension savers a voice in how their hard-earned savings are being looked after”.

He said: “I firmly believe the days of trustees leaving everything to asset managers without scrutiny must come to an end.

“We need to do more to improve pension schemes’ and asset managers’ stewardship, encouraging engagement with companies to ensure they are fit for purpose in the 21st century.

“I see no reason why trustees shouldn’t be able to determine their own high-level policies — on areas such as climate risk management, diversity or pay — and find an asset manager to implement it.”

Schemes demand better alignment

The Occupational Pensions Stewardship Council, which was set up by the Department for Work and Pensions to promote and facilitate high standards of stewardship of pension assets, has also written to asset managers, demanding better alignment on voting policies.

The letter, signed by 17 asset owners — including the Pension Protection Fund, Nest and Scottish Widows — asks for asset managers to ensure better and more open, honest communication with schemes about representing their preferences.

This may include considering pension schemes’ voting policies and communicating on areas of misalignment before it is too late for asset owners to intervene. It also means being open to, and facilitating, voting on specific pre-agreed resolutions according to their expressed view.

Members of the OPSC have also asked asset managers to report on whether they are prepared to have conversations with their clients on voting intentions.

Maria Nazarova-Doyle, head of pension investments and responsible investment at Scottish Widows, noted that “receiving reports months after the voting has happened leaves no room for engagement and no ability to influence what action is taken within the billion-pound portfolios that the pensions industry is collectively responsible for”.

She said: “Stewardship, including engagement and voting, has the power to make a huge difference in the real world, be it on environmental issues, issues of social justice, workers’ rights, and many more.

“Asset owners have a crucial role to play in being responsible stewards of this capital and their voice has to be heard.”

Diandra Soobiah, head of responsible investment at Nest, explained that while many of Nest’s investments are in segregated accounts, which allow the master trust to set a voting policy and engage with its managers about voting decisions, “we believe these options should be available to all”.

“Pension funds should not need to change how they hold their assets to gain a voice,” she said.