The end of stewardship box-ticking?

October 22, 2021

The Department for Work and Pensions (DWP) has published a consultation covering UK pension schemes' climate change reporting and stewardship duties.

In it, the DWP lays out rules and guidance for schemes to "take ownership" of stewardship, including the recommendations of the Taskforce on Pension Scheme Voting Implementation (TPSVI).

The consultation, titled ‘Climate and investment reporting: setting expectations and empowering savers’, states that the pensions industry has lagged in its stewardship capabilities, particularly compared to the progress made with ESG asset allocation in recent years.

Traditionally, pension schemes invested in pooled funds were at the mercy of asset managers' house views with regards to stewardship policies.

However, the DWP made it clear that it was no longer sufficient for trustees to outsource stewardship responsibilities to their asset managers.

The department stated: "DWP expects trustees to either set their own voting policy or if they have not set their own policy, acknowledge responsibility for the voting policies that asset managers implement on their behalf. Ultimately, trustees are encouraged to take ownership of the scheme’s stewardship policies. This means it is not enough for trustees to simply report that they have delegated stewardship to their asset managers."

The TPSVI has recommended that trustees be empowered to "set an expression of wish over their own voting policy in pooled funds".

In response, the DWP said it had no issue with this “provided that in doing so [trustees] adhere to their fiduciary duty to act in the best interests of their members and subject to any relevant contractual arrangements with their fund manager”.

The document also lays out several ways in which trustees of pooled funds can be involved in their scheme’s stewardship policy.

For example, there is an opportunity when asset managers are selected and appointed for trustees to put questions to potential managers about stewardship.

The consultation - available here and open until 6 January 2022 - says trustees must set out in their scheme’s statement of investment principles any policies on stewardship, including engagement and voting, "as well as other considerations such as financially material ESG factors".

Minerva has been widely acknowledged for providing the proxy voting expertise to make pooled fund voting possible in a collaboration with DWS.