Two UK pension industry associations recommend that asset owners and investment managers embed stewardship at the heart of their relationships.
The Pensions and Lifetime Savings Association (PLSA) and the Investment Association (IA) today released a joint document – Investing with Purpose: Putting Stewardship at the Heart of Sustainable Growth – which examines issues relating to the involvement of pension plan trustees in the management of investments.
The report, produced by a steering group made up of management companies, pension funds, investment advisers and lawyers jointly constituted by IA and PLSA, makes several recommendations for each stage of the relationship between the companies. management and asset owners from the nomination process to the ongoing monitoring of established relationships, to help deliver better returns to savers.
The document seeks to address issues such as a lack of clarity in stewardship expectations, a focus on short-term performance, and insufficient consideration of stewardship outcomes that risk undermining long-term sustainable growth.
He recommends that there be “greater clarity and articulation of stewardship expectations in the manager appointment process”. Pension funds, the report says, should clearly articulate their stewardship policies, and investment managers should define their fund’s stewardship approach throughout the appointment process, with pension funds clearly indicating how the stewardship of the manager will be incorporated into their appointment decision.
Investment consultants also need to be clear about how they support integrating stewardship into the valuation process, he adds.
In addition, a “governance charter” setting out mutual expectations for promoting long-term sustainable value should be established. This charter must cover mutual expectations on the promotion of long-term sustainable value through:
- the expected minimum duration of the relationship;
- performance reviews;
- ongoing dialogue, communication and disclosures, including how to facilitate customer voice;
- market responsibilities and systemic risk management;
- culture and governance; and
- ongoing alignment of stewardship policies.
The report also recommends that a monitoring framework be agreed between asset owners and investment managers that aligns the performance review cycle, investment and management objectives and key performance indicators.
Richard Butcher, Co-Chair of the Steering Group and Managing Director of PTL, said, “Stewardship is key to creating long-term value. Pension plan administrators and other long-term investors will fail to meet their ESG, climate and sustainability goals if they do not manage well. And they can’t be passive about it.
“Stewardship is essential to create long-term value”
Richard Butcher, Managing Director of PTL
He noted that the recommendations set out in the document are designed to make the process “easier and more robust”, but their success “depends on the support of all parties in the investment chain”.
Archie Struthers, co-chair of the steering group and independent expert in investment management, added: “Asset owners and investment managers are facing unprecedented challenges to help the economy move to net zero. Genuine collaboration, with a clear focus on sustainable value, will be essential to address these challenges in the future.
He said the recommendations will help both asset owners and investment managers focus on practical steps that can be taken at every stage of the relationship, from pre-appointment to ongoing monitoring.
The report follows the Asset Management Taskforce tasking AI and PLSA to bring retirement and investment industries together toward a common goal: to embed stewardship into the relationship between asset owners and investment managers.
IA and PLSA established the Joint Steering Group in 2021, which focused on finding solutions on how the relationship between asset owners and investment managers could be governed d in a way that promotes a long-term orientation and aligns management expectations.