Trustees "hold fund managers to account on ESG or change advisor"

The Association of Member Nominated Trustees (AMNT) has urged trustees to develop effective ESG policies and use them to hold fund managers in pooled fund arrangements to account.

Based on the AMNT report evaluating the obstacles to allowing trustees’ voting policies to be implemented by fund managers in pooled fund arrangements and builds on its Red Line Voting (RLV) initiative.

When trustees adopted the RLV policies, many fund managers refused to accept them. The report therefore makes three main conclusions: First, the barriers presented to split voting in pooled funds are not insurmountable, especially as some fund managers have already been doing this for some clients. Put simply, asset owners' policies could be implemented by fund managers if there was the will to do so.

Second, whilst a lack of will represents a key driver for inertia in addressing the issue, long-term underinvestment in the voting system means that it is no longer fit for purpose. The voting system needs urgent reform. There needs to be a simplification of the voting chain and investment in technology to enable the effective stewardship of pension fund investments for the long-run.

Third, asset owners need to be more proactive in their stewardship approach, they cannot do so without the support of their fund managers and investment consultants. So far, this has been sadly lacking.

AMNT’s main recommendation is for the creation of an industry working group, led by the Department for Work and Pensions, to develop solutions to address the barriers identified in the report. To add weight to this, the Minister for Pensions and Financial Inclusion has endorsed this recommendation.

The remit of the working group should be to address the overly complex and archaic voting infrastructure; underinvestment in the stewardship function in fund management; and transparency of voting policies and outcomes. Key short-term recommendations include advising asset owners to develop their own voting polices on ESG issues they deem to be financially material, as well as benchmark their fund managers’ voting policies against their own, and hold them to account for it accordingly. If their investment consultants do not support them in this endeavour, they should consider changing advisors.

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