The DWP stewardship consultation outcomes summarised!
So, the DWP dropped some lovely weekend reading on Friday in the form of a report titled "Reporting on Stewardship and Other Topics through the Statement of Investment Principles (SIP) and the Implementation Statement".
The report shares the results from an industry consultation started in October 2021. Participants were asked to share how they felt schemes were aligning with Paris Agreement goals, and implementing Statement of Investment Principles.
Taking the SIP
Trustees of workplace pension schemes with 100 or more members must prepare a SIP annually; these are public-facing statements they must maintain and periodically revise. If they don't, they face civil penalties. Trustees follow regulations like thunder follows lightning, so paying civil penalties is a non-starter.
Amongst other things, the SIP must cover:
- The extent to which trustees consider social, environmental and ethical factors when choosing and retaining investments.
- The trustees' policy on exercising the voting rights attached to their investments.
But as we know, in reality, these voting rights are held by the fund manager.
Well hello regulator
Enter the regulator to provide clarity on where they see ownership.
The DWP "expects trustees to either set their own voting policy or explain in the SIP how they will monitor their asset manager's voting policy. Ultimately, trustees are encouraged to take ownership of the scheme's stewardship. Trustees are discouraged from simply reporting that they have delegated stewardship to their asset managers".
What does this mean for the trustee?
Trustees will truly have to hold fund managers accountable for how they vote. However, as we know, trustees are already strapped for time. The DWP goes even further to say: "Where the asset manager votes on the scheme's behalf, the trustee should decide which of those votes are most significant and must include those in the IS (implementation statement)", here's a link if you want to find out more. Again, more work! It sounds like trustees are going to need some help here.
Time to call for back up
Within the Tumelo Institutional platform, we are building functionality that will help asset owners (trustees) and fund managers:
- Improve awareness of underlying holdings and votes of the pensions they steward/manage
- Gain greater visibility of how fund manager stewardship aligns with members' preferences
- Save time creating reports through export features, making it easy to meet the new regulations
A few other cool (yes) points came out of the report. "Voting activity could be considered alongside trustees' ongoing engagement and dialogue with asset managers" – this is the DWP telling trustees to review the voting activity of the fund manager regularly.
"Where the trustee has set an expression of wish on voting in relation to any particular investment held, they should indicate in the IS whether this has been taken into account by their asset manager when describing voting behaviour." Tumelo is developing a feature that allows a trustee to set a vote policy upfront. Those votes are automatically applied; if the fund manager votes against this, it's flagged on the platform, allowing for further analysis.
And lastly…."The implementation statement is an opportunity for trustees to set out any steps they took to maximise influence over how votes have been cast. Trustees should explain in the IS whether and how they made clear to their managers what they considered the most significant votes in advance of those votes being placed." The Institutional platform will be able to provide fund managers with the Expression of Wish of trustees before they submit their vote.
Tumelo's ticking boxes all over the shop. It's exhausting.