The Pensions and Lifetime Savings Association (PLSA) has updated its Stewardship and Voting Guidelines, taking into account recent political and economic circumstances, including the cost-of-living crisis and changes in company operations.

The guidance aims to help pension fund trustees, investment managers and other institutional investors decide how to exercise their vote at annual general meetings, in order to protect and enhance the value of savers’ capital and act as good stewards.

The updated guidance reflects new regulations on shareholder engagements and includes dedicated sections designed to help investors challenge how investee companies are managed, tackling issues such as board leadership, audit, risk and climate change.

In particular, the latest update takes stock of recent political and economic circumstances, with the PLSA identifying three themes as having specific relevance for 2023: the cost-of-living crisis, climate change, and the impact of company operations on its workforce and wider society.

Indeed, the PLSA noted that executive pay has consistently concerned shareholders in recent years, highlighting research from Minerva Analytics, which found that remuneration and board-related resolutions were the largest sources of shareholder dissent in 2022, accounting for 44.33 per cent and 29.87 per cent of high dissent resolutions, respectively.

It also pointed out that the cost-of-living crisis, high inflation and energy price hikes have drawn particular attention to this issue in 2023, arguing that remuneration policies can act as a litmus test for wider corporate governance practices.

The voting guidelines therefore recommended that remuneration structures and incentives for executive directors should cascade down to all employees in order to allow employees to share in the success of the business, and encouraged shareholders to vote against the remuneration policy where it doesn’t match up to these standards.

Climate change also remained a key theme, as the PLSA noted that, despite recent headlines around the cost-of-living crisis, there is no evidence that investors are reducing their focus on climate change issues.

Instead, the PLSA noted an increased focus among its members to hold their investment chains accountable to their net-zero commitments, with a growing expectation of targets and transitions plans.

However, the PLSA also emphasised the need to consider other sustainability issues alongside climate change, noting that waste, deforestation, water usage and biodiversity are also high on many investors’ agendas.

In light of this, the PLSA cautioned investors to be careful not to ignore non-climate sustainability issues and consider carefully which sustainability issues are most material to holdings in their portfolio, prioritising allocation of stewardship resources appropriately.

In particular, the PLSA recommended that investors consider voting against companies’ annual report and accounts where “operations are highly carbon intensive and there has been no disclosure of the climate-related assumptions which underlie their financial calculations, or where those assumptions are not consistent with the Paris Agreement.”

The updated guidance also reflected changes in workforce practices following Covid-19, explaining that the pandemic exposed a growing sentiment of the need to improve working conditions for staff.

It therefore argued that mental health, alongside other wellbeing practices, should be at the heart of companies’ workforce concerns, also stressing the need for companies to ensure that modern slavery is not taking place within their business or supply chains.

In addition to this, the PLSA suggested that efforts should also be taken forward to imbed better practices to increase wider diversity and inclusion, of all protected characteristics, in organisations.

PLSA deputy director of policy, Joe Dabrowski, stated: “Large shareholders have a duty to act as good stewards of the capital they manage on behalf of pension savers and other end investors.

"Annual general meetings are an important juncture at which they can scrutinise and influence directors to ensure investee companies are run in the best interests of pension savers and other long-term shareholders.

“The Stewardship and Voting Guidelines include many and specific examples of the types of corporate behaviour investors should be challenging as they dispense their stewardship responsibilities and are intended to encourage the highest standards from company directors.

“Numerous studies have shown that companies that uphold the highest corporate standards tend to financially outperform, adding value to the millions of pension savers they count among their shareholders.”

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