Implementation statements – the rubber finally hits the road on stewardship
New stewardship disclosure requirements came in today, October 1st 2020.
Natalie Winterfrost, Trustee Director at LawDeb takes a look at why trustees have struggled with stewardship so far, and how they can do more - column published on mallowstreet.com 30/09/20
Although ESG policy has been a required disclosure in the SIP since the 1999 Investment Regulations came into force (requirements which were updated and modernised in 2005), one has to wonder whether this disclosure of policy has done as much as might have been hoped to drive forward an effective stewardship agenda.
When defined benefit schemes publish their accounts from October 2020, they will have to provide details of how, and the extent to which, the SIP has been followed during the year in relation to matters of stewardship. For schemes offering defined contribution benefits, this requirement extends beyond voting and engagement, yet it is still likely to be the stewardship aspects that will lead to the most head scratching.
Most will say that they put stewardship high on their agenda and excel at it, but in reality it can be difficult to tell whether they are doing more than paying lip service. Increasingly, active fund managers seek to incorporate engagement activities into their fund management processes; however, while messaging on the importance of this may be coming from the top of these organisations, it may take a long time to change the behaviour and beliefs of the fund managers and analysts responsible for the interaction with companies.
Active fund managers choosing to retain, rather than sell, a security will usually prefer to support management when it comes to a vote, and may be working hard to influence decisions ahead of a matter being put to the vote.
But this is where engagement effectiveness becomes particularly challenging to understand. Disclosures around company engagement may be limited to some high level statistics on numbers of meetings that tell the user very little and one or two case studies, where it is hard to ascertain whether outcomes really have anything to do with the fund manager’s actions. Of course that’s presuming that one’s fund manager provides engagement data for the period of your accounts in the timescales needed at all!