By Christopher Walker
On 24 November the UK Investment Association (“IA”) published the report “Investing with purpose: placing stewardship at the heart of sustainable growth” as produced by HM Treasury’s Asset Management Taskforce (the “Taskforce”).
The report provides a series of twenty recommendations for the recovering post-coronavirus economic landscape and is designed to ensure that asset managers focus on delivering long-term, sustainable benefits for all stakeholders in the financial system.
The report’s recommendations are structured around a “three pillar” approach:
- Stewardship behaviours: practical steps for strengthening how stewardship works in practice across the full range of investments;
- Stewardship for clients and savers: delivering on the purpose of the industry to generate sustainable value and achieve clients’ investment goals; and
- Economy wide approach to stewardship: ensuring the collective responsibility of market participants and stakeholders.
Key recommendations of interest to asset managers will (non-exhaustively) include:
- expansion of activity across different asset classes beyond the current focus on equities (e.g. bonds);
- broadening the scope of adoption of the UK Stewardship Code beyond investment managers who are expected to be signatories to all stakeholders involved in the investment process;
- ensuring further guidance is provided to shareholders in respect of using requisitioned resolutions more proactively as an escalation tool where companies are not addressing their concerns;
- improving corporate reporting and disclosures by ensuring companies, asset managers and their advisors take responsibility for reinforcing the Corporate Governance Code’s “Comply or Explain” regime and ensuring that the quality of explanations improve. Investors are expected to set out their support for the Comply or Explain regime and reinforce this with their engagement and voting approach. Investors should set out the attributes of a high-quality explanation;
- funded public service schemes (e.g. Local Authority Pension Schemes and investment pools), other relevant asset owners in government and UK Government Investments (who advise the government on the management of certain assets) are expected to embed stewardship in their own investment processes and become signatories to the UK Stewardship Code;
- an endorsement of the IA’s and PLSA’s commitment to establish a new steering group to explore how to embed “a focus on long-term factors including stewardship in the relationships between asset owners and investment managers”;
- an endorsement of ongoing international efforts to enhance and harmonise corporate reporting standards for sustainability and, pending an international standard, industry and regulators are encouraged to consider steps to promote further voluntary adoption of existing widely accepted frameworks and standards such as TCFD, SASB and GRI - the early adoption of TCFD by investee companies and the use of other reporting standards, such as SASB, should be considered a stepping stone until an international reporting standard is developed; and
- the establishment of a dedicated council of UK pension schemes to promote and facilitate high standards of stewardship or pension assets.
“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” - John Glen MP, Economic Secretary to the Treasury