Govt urged to create UK Pensions Council to strengthen stewardship

The HM Treasury-led Asset Management Taskforce has published 20 recommendations to place stewardship at the heart of the ‘build back better’ post-covid-19 agenda, including plans for a council of UK pension schemes.

The report, Investing with Purpose: placing stewardship at the heart of sustainable growth, provides a ‘blueprint’ for integrating stewardship into the investment process, and outlines three main 'pillars' which will require action to strengthen stewardship practices.

These are: strengthening stewardship behaviour, including practical steps to further develop how stewardship works in practice; stewardship for clients and savers by generating sustainable value and achieving savers’ goals; and creating an economy wide-approach to stewardship.

The recommendations include a widening of the adoption of the new UK Stewardship Code beyond investment managers, to all service providers involved in the investment process, in order to ensure all participants follow “the same high standards”.

In particular, the group asked the government to evidence its commitment to the stewardship agenda by setting the expectation that Local Authority Pension Scheme and investment pools should commit to becoming signatories to the Stewardship code by 2022.

Furthermore, it also called for better embedding of stewardship in pension assets, which represent 40 per cent of the assets under management in the UK, by seeking government support for the establishment of a Council of UK pension schemes to promote and facilitate high standards of pensions stewardship.

It stated that members of the council should also either be signatories of the UK Stewardship Code or have publicly committed to signing the code within two years of joining the council.

In addition to this, it has recommended that UK pension schemes should be required to explain how their stewardship policies and activities are in the best interest of members, calling on The Pensions Regulator to issue related guidance on how trustees might evidence this.

It stated: "As pension scheme members’ interest in the sustainability of their investments increases, it is essential for funds to engage them on the role of stewardship in delivering sustainable value and in serving their best interests.

"While some funds have been very active, other pension funds have had historically low engagement with the stewardship agenda.

"To boost engagement, we recommend the establishment of a dedicated council of UK pension schemes (both public and private) to promote and facilitate high standards of stewardship of pension assets."

The report also called for improvements in companies’ reporting and disclosures to ensure greater consistency and comparability, supporting the government’s recent announcement to require all large UK incorporated companies to report in line with the Taskforce on Climate-related Financial Disclosures (TCFD).

Commenting on the recommendations, The Treasury economic secretary, John Glen, said: “The UK’s stewardship standards are internationally respected and contribute to our standing as a leading global asset management centre.

“These recommendations will encourage more effective stewardship right across the investment chain and help the asset management sector continue to support sustainable activity as we build back better and greener.”

Asset Management Taskforce’s Stewardship Working Group chair and Investment Association chair, Keith Skeoch, added: “Investment is a critical part of how we shape our economic future and will have a profound influence on the quality of the recovery from coronavirus crisis, not just in the UK but around the world.

“We need to seize this moment to ensure stewardship is further embedded at the heart of the investment process, so that we can create long-term sustainable value that benefits businesses, communities and the environment.”

The report also endorsed the recent commitment by the Investment Association and the Pensions and Lifetime Savings Association (PLSA) to establish a new working group to explore how to embed a focus on stewardship into the relationship between asset owners and investment managers.

Commenting on the report, PLSA chairman, Richard Butcher, added: “The vast majority of pension schemes take very seriously their duty to act as responsible stewards of the £2.2 trillion of retirement savings they manage on behalf of their members.

"The PLSA and its members believe deeply in the responsible allocation, management and oversight of members’ pension savings. The PLSA wants to help schemes demonstrate how they are meeting their responsibilities and exercising their rights as shareholders and creditors.

“We look forward to working with the Treasury, the Investment Association and other stakeholders to push forward these recommendations as well as representing pension schemes on the proposed asset owner council to promote and facilitate good stewardship by all asset owners.”

The PLSA has also previously published vote reporting templates to help pension schemes and investment managers to comply with recent legal changes in stewardship requirements.

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