Standardised and comprehensive vote reporting seen as vital to align asset managers’ actions with asset owners’ wishes.
Proposals for a voluntary reporting template by asset managers should be strengthened to provide meaningful insight on their voting records at AGMs, according to asset owners.
The UK Financial Conduct Authority’s (FCA) Vote Reporting Group published for consultation last month proposals for voluntary, standardised, comparable and comprehensive vote reporting disclosures by asset managers to improve flows of consistent, up-to-date and decision-useful data allowing asset owners to engage with managers on their vote reporting decisions.
Asset owners and investment consultants have backed the proposals, but have called for the templates to be made mandatory and for their contents to be shared more quickly.
“These proposals will go a long way to help improve alignment between asset owners and asset managers, which we have seen in disarray over the last couple of years in particular,” Maria Nazarova-Doyle, Head of Responsible Investments and Stewardship at Scottish Widows, told ESG Investor.
“Given that the new template is meant to set a standard in the market and allow asset owners consistent and timely comparisons of voting results of their asset managers, the FCA should consider making this template mandatory.”
According to Nazarova-Doyle, if vote reporting disclosures by asset managers are left for voluntary adoption, the case for consistency will “not be fully solved” as some will adhere to the FCA’s proposals and some will not.
UK-based pension provider Scottish Widows has analysed the voting records of its external asset managers and published the findings as part of its 2022 Stewardship Report, issuing a warning to managers in misalignment with the asset owner’s voting guidelines. The report noted that, overall, externally appointed fund managers voted against management recommendations on 43.81% of shareholder proposals and against management recommendations on 9.58% resolutions proposed by management during the 2022 annual general meeting (AGM) season.
Faith Ward, Chair of the UK Asset Owner Roundtable, expressed concern at the perceived misalignment between asset owners’ long-term interests and how asset managers are exercising proxy voting at key AGMs of European oil and gas majors such as Shell and BP.
Following this year’s proxy season, the UK Asset Owner Roundtable has invited asset managers to have a “constructive dialogue” with its members to improve alignment on climate-related engagements with investee firms.
Lindsey Stewart, Director of Investment Stewardship Research at Morningstar, told ESG Investor that the FCA’s proposal will allow asset owners to access the information they need to ensure alignment with their asset managers on sustainability objectives.
“My only minor concern is the voluntary nature of it,” said Stewart, adding that he hoped that the decision to make vote reporting disclosures voluntary is intended to ease the reporting burden for asset managers in the early stages of implementation.
“Ideally, I would like to see all managers above a certain size of equity assets under management be required to use standardised reporting,” he said. “Perhaps that is what [the FCA] have in mind for the long term.”
Timing and alignment
The current practices on vote reporting are “complex and inconsistent” which does not give asset owners a clear view of comparable information across their portfolios, said Nazarova-Doyle, who is a member of the FCA’s Vote Reporting Group.
Paul Lee, Head of Stewardship and Sustainable Investment Strategy at investment consultants Redington, told ESG Investor the proposals should simplify the vote reporting process for both parties.
Standardising this process will enable asset owners to aggregate information more readily across managers, allowing them to better understand their overall voting position, as well as enabling them to challenge managers whose voting is misaligned with their views, he said.
“There’s been a lot of grumbling from investment managers about vote reporting requests from pension funds in particular,” he said.
Samantha Chew, Stewardship Lead at Aegon UK, which is unable to consider divestment of its largely passively-managed portfolio, said poor transparency and timeliness of vote reporting were two longstanding barriers to influence.
“Only receiving a manager’s report many months after voting happened leaves limited room for us to engage on what action is taken within our own portfolios,” she said.
“Voting rationales provided by asset managers are variable in quality, often lacking links with the managers’ voting policies and engagement (if undertaken) with the company.”
The vote reporting template developed by the FCA’s Vote Reporting Group builds on the US Securities and Exchange Commission’s (SEC) ‘Form NP-X’, which details the proxy voting record of mutual funds and other registered management investment companies.
Form NP-X has been a required filing since 2003 for certain types of US funds and is familiar to many UK asset managers. It is currently the only mandated comprehensive vote reporting template and was referenced in Taskforce for Pension Scheme Voting Implementation (TPSVI) report.
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.
Chew said a central public registry would save asset owners time and effort in manually requesting the information from asset managers, especially for highly diversified asset owners like Aegon UK with outsourced voting to multiple asset managers.
“The public registry should be user-friendly, decision-useful and overseen by an independent body appropriately,” she said.
To incentivise this and ensure harmonisation in reporting, uptake and provision of information by asset managers in the public register should be linked to other relevant regulatory expectations and industry initiatives, such as the UK Stewardship Code and the Institutional Investors Group on Climate Change Asset Owner Stewardship Questionnaire, she said.
“Given the variety of pension scheme year ends, reporting is likely to be needed on a monthly basis rather than quarterly as currently proposed as the minimum,” said Redington’s Lee.
Valeria Piani, Head of Stewardship, Sustainable Investment Team at Phoenix Group, told ESG Investor that a public register would offer “great value” both in terms transparency and cost efficiency.
“We believe that to address potential confidentiality concerns – for example, about portfolio composition of highly concentrated active funds or segregated mandates – a public register can be limited to displaying firm-level voting activity,” she said.
“Asset manager clients can then be entitled to view fund-by-fund voting information for the fund managed on their behalf with a separate log-in that entitles them to view a specific fund group.”
In November 2022, the FCA established the Vote Reporting Group as an independent working group to build an industry consensus for a voluntary comprehensive vote reporting template for UK asset managers. It is comprised of 31 members from across the industry drawn from the key trade associations and is independently chaired. The FCA is an observer and provides the secretariat.
The FCA’s Vote Reporting Group is asking for comments on its consultation paper by 21 September 2023.