Fund managers pressured to show ESG engagement

Pensioner-with-caneFund managers competing for UK pension fund business increasingly need to prove engagement with invested companies over issues like the environment and cannot rely on just signing the UN Principles for

Responsible Investment (UN PRI), research shows.

The need to demonstrate shareholder engagement when business is pitched for is a "strong new development", the National Association of Pension Funds (NAPF) says in the release of its tenth annual Engagement Survey.

The first survey, which the UK pension fund trade body conducted in 2004, showed that one-third of responding schemes considered stewardship activity when selecting investment managers or consultants. Ten years on, 80% of respondents say they now take stewardship activity into account in the selection process – and for over 50% this extends across all asset classes.

The NAPF says screening for asset manager stewardship activity in the selection process is "not a mere tick-box exercise" for most funds, with 60% saying they are not content for managers to simply be a UN PRI signatory but will instead actively question prospective managers about their stewardship approach.

Once selected, pension fund scrutiny of asset manager stewardship grows, the NAPF says. More time is now spent reviewing reporting; more attention is paid to the votes cast and, in turn, more questions are asked on a more regular basis.

Will Pomroy, corporate governance policy lead at the NAPF, says: "A decade on from our first engagement survey there is now clear recognition that environmental, social and governance risks can have a material impact on pension fund investments and that these issues need to be managed through ongoing engagement with companies and the exercising of voting rights.

"This recognition has rightly in turn been translated into the selection of asset managers; from one-third to 80% considering the stewardship approaches of asset managers in a decade is a real step change with significant implications."

Responses to the survey were received from 50 pension funds with combined assets under management of £419 billion (€529 billion).

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