Report encourages institutional investors to ‘build back better’ with sustainable growth.
Supported by the Investment Association (IA), the HM Treasury-led Asset Management Taskforce has launched a 20-point blueprint to improve stewardship standards among UK institutional investors.
The ‘Investing with Purpose: Placing stewardship at the heart of sustainable growth’ report includes proposals to assist asset managers and asset owners in expanding stewardship across asset classes and integrating it more thoroughly into investment processes. The report also calls for the implementation of a Council of UK Pensions Schemes, which would oversee the implementation of higher standards of pension stewardship.
The 20 proposals centre on three main pillars: stewardship for clients and savers (generating sustainable value); strengthening stewardship behaviour (practical steps outlining how stewardship works in real-time); and creating an economy-wide, and therefore standardised, UK approach to stewardship.
The report noted there has been a larger focus on stewardship in the equities space to date, despite the fact that just over 30% of assets under management (AUM) are placed in bonds. The Taskforce has therefore called for an expansion of existing stewardship practices, both harmonising and escalating stewardship across all asset classes.
“The recommendations are ambitious and far-reaching, with the aim of expanding stewardship across all asset classes and ensuring it is embedded into the investment process,” said Andrew Ninian, the IA’s Director for Stewardship and Corporate Governance.
To ensure consistency and comparability, the Asset Management Taskforce emphasised its support of the UK Chancellor of the Exchequer’s recent announcement that all large UK-incorporated companies will be expected to report in line with the Taskforce on Climate-related Financial Disclosures (TCFD) by 2025, with the mandate coming into force as early as 2021 for the UK’s largest pension funds.
High stewardship standards across service providers
The adoption of the new UK Stewardship Code should go beyond investment managers, the report noted, asserting that all service providers involved in the investment process should also look to implement the same high standards in stewardship expected from asset managers.
A recent report published by the Association of Member Nominated Trustees (AMNT) highlighted the need for improved communication and coordination between asset owners and managers, based on evidence that the ESG-based policies of the former were not being carried out by the latter.
By improving stewardship guidelines and clarifying expectations, the proposals should help UK asset managers to work more effectively with institutional investors and asset owners to maintain and further implement ESG inclusions within their investments, said Catherine Howarth, Chair of the Asset Management Taskforce’s Stakeholder Working Group and CEO of ShareAction.
“It will strengthen the UK’s ability to handle future threats to our prosperity, such as climate change and biodiversity loss. We hope to see swift adoption of the 20 recommendations in this report, thereby cementing the UK’s existing strong reputation for stewardship of assets,” Howarth said.
Earlier this month, ShareAction’s proposed Responsible Investment Bill was presented to MPs at an event held in collaboration with the All-Party Parliament Group on Sustainable Finance. The Bill called for a strengthening of the legal duties of fiduciary investors, both pension trustees and their asset managers, to act in the best interests of beneficiaries. ShareAction proposed a stipulation in the law that would allow for “best interests” to include environmental and social considerations.
“The UK’s stewardship standards are internationally respected and contribute to our standing as a leading global asset management centre. These recommendations will encourage more effective stewardship right across the investment chain and help the asset management sector continue to support sustainable activity as we build back better and greener,” said John Glen MP, Economic Secretary to the Treasury.
The Asset Management Taskforce was first established in October 2017 and designed to encourage cross-communication between the government, the asset management industry and the Financial Conduct Authority (FCA).