Respondents to UK financial watchdog’s consultation say template must be made public to foster “greater accountability and transparency”.
Market participants have reaffirmed their desire for the UK Financial Conduct Authority’s (FCA) Vote Reporting Group vote reporting template to be made mandatory following a three-month consultation.
The consultation set out with the goal of building “industry consensus” on a voluntary vote reporting template for asset managers in the UK. The objective of these proposals is to offer “more consistent, up-to-date and comparable” data to asset owners, enabling them to make “timely and accurate decisions while increasing reporting efficiency for asset managers”.
In its response to the consultation, UK Sustainable Investment and Finance Association (UKSIF) said that it sees “considerable value” for asset owner clients and asset managers in the UK from the introduction of a new vote reporting regime that can facilitate a “greater degree of standardisation and consistency” across managers’ vote disclosures.
UKSIF suggested that this would create a number of “important benefits”, including enhancing the value and timeliness of voting across the UK’s investment industry, promoting transparency in voting behaviour, more effective investor scrutiny of investee firms, and improving interactions between asset owners and managers.
Lindsey Stewart, Director of Investment Stewardship Research at Morningstar, told ESG Investor that the vote reporting proposals are “point in the right direction”, and that standardised reporting with public disclosure would be “beneficial to the market”.
But, to realise these proposals’ potential, Stewart added, it will be necessary to move from voluntary to mandatory reporting.
Make it mandatory
Asset owners previously suggested that proposals for a voluntary reporting template by asset managers should be strengthened to provide meaningful insight on their voting records at AGMs.
Asset owners and investment consultants backed the proposals from the FCA Vote Reporting Group, but have called for the templates to be made mandatory and for their contents to be shared more quickly.
Former Head of Responsible Investments and Stewardship at Scottish Widows Maria Nazarova-Doyle previously told ESG Investor that the FCA should “consider making this template mandatory” given it is “meant to set a standard in the market and allow asset owners consistent and timely comparisons of voting results of their asset managers”.
Hilkka Komulainen, Head of Responsible Investment at Aegon UK, suggested that the template could be implemented in a “phased, mandated approach”, with it initially being made mandatory for the biggest asset managers and mandatory for smaller asset managers at a later stage.
Lewis Johnston, Director of Policy at ShareAction, said that the NGO hopes the new framework will be accompanied by much “higher and more stringent” expectations of asset managers.
He added that while ShareAction recognises that the vote reporting template will be initially introduced on a voluntary basis that it should be backed by a “clear commitment that adherence to, and use of, the framework should become an established norm”.
“Ultimately we want the requirements set by the framework to be made mandatory for regulated firms,” Johnston said.
Georgia Stewart, CEO of shareholder voting fintech Tumelo said that the FCA’s consultation is “on the right path”, but reiterated that the voting template “must be mandatory” for asset managers that manage pooled funds on behalf of third-party clients.
Tumelo recently partnered with UK-based asset manager Legal & General Investment Management (LGIM) to enable a new pass-through voting solution which allows LGIM clients – including pension schemes – to apply their preferred voting policy to shareholder proposals across their pooled fund holdings. The London Borough of Camden’s £2 billion (US$2.48 billion) local government pension scheme became the first LGIM client to use the solution earlier this month.
“The standardised vote reporting template shouldn’t be optional”, Tumelo’s Stewart said, noting that in order to “further the transparency of stewardship” in the UK all asset managers should be required to disclose whether they offer pass-through voting to their clients.
“The technology to do so exists in the market and asset owners want the ability to influence voting,” she added.
Under the Vote Reporting Group’s proposals, three new separate bodies would be created to administer the new reporting processes: one for administering the voting template, one for the public registry and one to oversee the development of the template and public registry.
Aegon UK agreed that oversight of the public registry should be undertaken by an independent body, preferably one that is “already in existence within industry”.
“We would also suggest consideration is given towards the body being regulated which would allow for adoption of a mandatory approach to the vote reporting templates” Aegon UK said in its response.
UKSIF suggested that the FCA should consider an initial piloting of the vote reporting template with firms prior to the introduction of a mandatory regime.
Positives of public availability
ShareAction, Tumelo and Aegon UK all called for the vote reporting template to be made publicly available, with it representing a major step towards embedding greater accountability and transparency in voting behaviour which will serve to improve stewardship standards for asset managers.
“These are vital developments for the improvement of the stewardship of UK investments and the relationships between asset owners and the management of UK companies they invest in,” Tumelo said in its consultation response.
Aegon UK noted that a publicly available template could save “time and effort” in manually requesting the information from asset managers, especially for large asset owners with outsourced voting to multiple asset managers.
“Public access improves transparency and could create beneficial public information on voting activity and improve accountability of asset managers”, Aegon UK said.