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Taskforce recommends
action to improve voting oversight

Our viewpoint

A recurring complaint in recent years has been the difficulties faced by investors in pooled funds who want a say in how votes are cast on their behalf. There was a significant step forward recently when the Taskforce on Pension Scheme Voting Implementation (TPSVI) published its recommendations. 

The Taskforce was set up by the Pensions Minister, Guy Opperman, in December 2020 after repeated calls from the Association of Member-Nominated Trustees (AMNT) to facilitate split voting in pooled funds. In other words, to allow investors in pooled funds to direct how their votes are exercised, rather than all votes exercised being in line with the asset manager’s voting policy. At present, very few listed equity managers are able to offer split voting. When LCP recently asked 75 of them about this, only five (6.7%) said they already offered split voting and a further five said they had plans to introduce it. BlackRock has since announced that it will be introducing split voting for 40% of its index equity assets in 2022. 

Overview of the recommendations 

The Taskforce’s recommendations go beyond split voting. They seek to facilitate voting and improve the quality of voting by occupational pension schemes more generally, and many of them would benefit other asset owners too. The Minister is a vocal champion of stewardship, so we can expect to see at least some of the recommendations implemented. 

The recommendations are pragmatic, taking account of the limitations imposed by the complexities of the legal framework within which pension schemes operate while building upon recent developments such as the UK Stewardship Code 2020, the new Occupational Pensions Stewardship Council, and the annual implementation statements that pension scheme trustees must prepare about their voting and engagement activities. The recommendations include: 

  • Pension scheme trustees should either: 
    • set and publish their own voting policy; or  
    • publicly take responsibility for voting policies implemented on their behalf, including by disclosing their managers’ policies on at least three topics with an analysis of any differences between the policies of different managers. 
  • The Department for Work and Pensions should encourage trustees to place greater emphasis on voting and engagement when selecting and monitoring managers. 
  • Investment consultants should highlight the importance of voting to their clients. 
  • Asset managers should allow pooled fund investors to set voting expressions of wish and the Financial Conduct Authority (FCA) should clarify that managers are permitted to act on such expressions. 
  • The FCA should support improvements in the voting information that managers provide to their clients, for example by: 
    • monitoring delivery of fund/mandate-level vote reporting, taking action if this is not done by the end of 2022; 
    • setting an expectation that managers will respond promptly to requests for the rationale for their voting decisions; and 
    • ensuring that any disclosures on “private” voting policies are made to all clients, not just some of them.

Measures to improve the transparency of managers’ voting would be particularly welcome and benefit a much wider group of asset owners. Those focused on fund/mandate-level disclosures would address the anomaly whereby pension schemes are required to publish annual voting information, but their managers are not required to provide that information to them. In LCP’s recent survey of listed equity managers, only 43 out of 78 managers (55%) said they could currently provide such data using the industry-standard Vote Reporting Template developed by the Pensions and Lifetime Savings Association. 

Increasing the demand for high-quality voting 

The Taskforce has sought to address the demands of asset owners who want more influence over their voting, but it also recognises that more needs to be done to increase the demand for such influence.  

Support for stewardship has been growing, with increasing resources devoted to this area by asset managers, regulators and policymakers. At LCP, we have been making the case for stewardship and the importance of asset owners exercising oversight of their asset managers’ activities in this area.   

Stewardship is particularly important for addressing systemic risks, since these cannot be adequately addressed through portfolio construction, and for safeguarding the long-term functioning of investment markets. The current focus on climate change is helping, because investors quickly realise that voting and engagement across the economy is vital in achieving net zero emissions globally, and this is the only way of protecting their assets against the severe physical impacts that will ensue if the Paris Agreement goals are not met. 

However, in my experience, most pension schemes still do not place much emphasis on stewardship in general or voting in particular. There is a tendency to delegate and forget. The new implementation statements are a start, ensuring that voting and engagement are given more agenda time, but they are generally treated as a compliance exercise rather than as adding value for pension scheme members. 

To help with this, we will be trialling ways of making vote reporting more accessible and decision-useful for asset owners, using it to highlight differences between the managers’ voting practices and hence why oversight is necessary. We regard voting as a differentiator between equity managers, particularly for index-tracking strategies and we believe it should form a meaningful part of owners’ manager selection decisions. It is easier to appoint a manager whose voting policies are aligned with the owners’ preferences than it is to seek to influence the policies of an existing manager.  

Next steps 

The Taskforce has made a valuable contribution to the movement in support of better stewardship. Although its remit was narrowly focused on pension schemes and voting, its recommendations have wider applicability and point the way to greater emphasis on other forms of stewardship. We can expect further policy and regulatory action in this area.  

In the meantime, I encourage asset owners to place greater emphasis on stewardship when selecting and monitoring their asset managers. The Taskforce’s recommendation to focus on three priority topics is a sensible and proportionate way of doing this. We’d be pleased to help you adopt this approach; please get in touch to find out more. 

A version of this article previously appeared on the ESG Clarity website.

LCP’s 2020 Stewardship Report

LCP’s 2020 Stewardship Report

Find out how we have supported our clients with their stewardship and responsible investment activities through 2020 and implemented the principles of the UK Stewardship Code 2020.

Read the report