July 16, 2020
Exercising voting rights is a key way to tackle Environmental, Social and Governance (ESG) issues. But pension schemes, in common with other institutional shareholders with assets invested in pooled funds, have no control over this – fund managers cast votes as they see fit.
The Shareholder Rights Directive now requires schemes to disclose how these votes are cast, holding trustees to account. To give schemes more choice when exercising their shareholder rights, First Actuarial has played an instrumental role in putting in place a practical and cost-effective pooled fund which takes an active approach to shareholder voting.
Lack of control over shareholder voting is a longstanding source of frustration for many schemes, as First Actuarial was keenly aware. “It affects our smaller clients in particular,” says Rob Skelton, Head of Investment Research at First Actuarial. “Larger schemes are more likely to run their own stewardship function.”
First Actuarial discussed the issue with PIRC, corporate governance specialists who carry out voting and engagement activities on behalf of organisations such as local authority and trade union pension schemes. “We suggested that PIRC launch their own pooled fund and explained how they could do this,” says Rob Skelton. “We helped them select The Asset Management Exchange (AMX) as the platform provider best suited to create this new pooled fund and build a cost-effective solution using best in class providers. In turn, AMX has appointed State Street Global Advisors to carry out portfolio management for the fund.”
The newly-launched Enhanced Governance Fund brings together the respective strengths of the partnership:
- AMX provides rigorous governance and risk oversight of the fund
- State Street Global Advisors tracks the MSCI World Index cost-effectively
- PIRC exercises shareholder voting rights following its robust and independent voting guidelines.
The Shareholder Rights Directive and ESG requirements
Pension schemes are already required to state in their Statement of Investment Principles (SIP) how they are tackling ESG issues, and voting at shareholder meetings should be a key part of their approach. Voting at shareholder meetings gives pension schemes influence over companies’ governance and behaviour, including how companies adapt to climate change, treat their employees, and impact wider society.
The EU’s Shareholder Rights Directive (SRD2) makes this key element of pension schemes approach to ESG an urgent issue for many scheme trustees. Under SRD2, schemes become more accountable for their voting as institutional investors. Trustees have to state publicly how they are implementing their stewardship policies and disclose how their significant votes were cast.
“First Actuarial’s investment team takes ESG very seriously, and we apply an ESG rating to each of the funds our clients use,” says Rob Skelton. “PIRC’s voting services – which include promoting sound governance, responding effectively to climate change and fostering good employment practices – cover the full range of ESG issues. Their independent outlook provides a genuine alternative to fund manager block voting, especially in areas like executive pay and director appointments.”
Hilary Salt, partner at First Actuarial, concludes: “This is a real breakthrough on a problem we’ve been trying to solve for over thirty years. I’m proud and delighted that First Actuarial has played a big part in making the PIRC and AMX partnership happen. For decades, our clients – in particular our trade union clients – have been pressing for a shareholder voting alternative based on long-term capital stewardship values. With this solution, more votes will be cast in ways that deliver on those aspirations. And it will be open to all schemes – large or small. Trustees will be able to make full use of the value of their shares, which includes voting rights.”
Notes to editors
- First Actuarial was set up in 2004 as a partnership with no external investors. We work with employers and trustees, providing the right blend of actuarial, consultancy, administration and investment services for every scheme we work with, building long-term relationships based on trust. First Actuarial is widely considered to be a trusted source of independent expertise on pension policy. We play an active role in government and industry affairs.
- The Asset Management Exchange (AMX) is an institutional platform which gives investors and asset managers a way to do business with each other. Built with a fund infrastructure designed for the needs of institutional investors, AMX standardises, centralises and streamlines the entire process of investing so it works better for everyone. Established by Willis Towers Watson in 2017, AMX negotiates with managers and transitions assets, provides reporting, and adds an extra layer of oversight. The platform is open to all investors and managers across the investment industry.
- Pensions & Investment Research Consultants Ltd (PIRC) is Europe’s largest independent corporate governance and shareholder advisory consultancy with over 25 years’ experience in providing proxy research services to institutional investors on governance and other ESG issues. PIRC’s range of services is designed to facilitate and support responsible capital stewardship by long-term investors. PIRC is dedicated to help clients effectively exercise their shareowner rights and to identify and mitigate governance risk in their portfolios. Our services are built on incisive, independent research, comprehensive data and extensive engagement with both companies and market participants.
- State Street Global Advisors (SSGA) created the world’s first Exchange Traded Fund and is an indexing pioneer. As the asset management arm of State Street Corporation, SSGA has, over 40 years, helped clients achieve their investment goals by building active and index strategies across asset classes.