During 2017/2018 the UK’s Local Government Pension Scheme (LGPS) system will be transformed and have new requirements to address ESG and Stewardship activities. The new investment regulations empower LGPS administering authorities in making their investment decisions under a new prudential framework expecting them to be responsible, for instance, in setting their policy on asset allocation, risk and diversity.
Manifest is an official service provider to the LGPS for Voting and Stewardship-related project services. [link]
LGPS Stewardship – All Change
LGPS administering authorities are due to publish their Investment Strategy Statements (ISS) by 1 April 2017 according to the provisions established in the guidance issued by the Department for Communities and Local Government (DCLG) on September 2016.
Following the UK Government’s consultation on Revoking and Replacing the Local Government Pension Scheme (Management of Investment of Funds) Regulations 2009, a new set of regulations (Regulation 7) governing investments made by LGPS administering authorities took effect from 1st November 2016.
Six New Requirements of LGPS
Administering authorities are required to prepare and maintain an ISS advising how their investment strategy fund has been determined and implemented in accordance with the Regulation 7 guidance which states the following.
- A requirement to invest money in a wide variety of investments;
- The authority’s assessment of the suitability of particular investments and types of investments;
- The authority’s approach to risk, including the ways in which risks are to be measured and managed;
- The authority’s approach to pooling investments, including the use of collective investment vehicles and shared services;
- The authority’s policy on how social, environmental, or corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments; and
- The authority’s policy on the exercise of rights (including voting rights) attaching to investments.
New ESG & Stewardship Requirements
The provisions underlined by the Regulation 7 guidance for the formulation and maintenance of their ISS, clearly address issues of responsible investment by the Local Government Pensions Scheme administering authorities.
Regulation 7(2)(e) requires funds to follow pertinent advice and act prudently when making investment decisions, “…a prudent approach to investment can be described as a duty to discharge statutory responsibilities with care, skill, prudence and diligence”. They must consider any factors that are financially material to the performance of their investments, including ESG factors contemplating the time horizon of the liabilities along with their approach to social investments.
Regulation 7(2)(f), emphasises that “administering authorities are encouraged to consider the best way to engage with companies to promote their long-term success, either directly, in partnership with other investors or through their investment managers, and explain their policy on stewardship with reference to the Stewardship Code. “
Administering authorities are strongly encouraged to either vote their shares directly or ask their fund managers to vote in line with their policy under the Regulation 7(2)(f) and to publish a report of voting activities as part of their pension fund annual report under Regulation 57 of the 2013 Regulations.
Regulation 7 (6) underlines that the ISS must be published by 1st April 2017 and requires it to be reviewed at least every three years.
Additional Reading: A Guide to Responsible Investment Reporting in Public Equity
To fulfil stewardship objectives Border to Coast has appointed Robeco as its voting and engagement service provider; an experienced partner with similar values who we will work with to ensure active ownership across all investments. Robeco provides active ownership services to institutional investors, enabling them to become active owners of listed companies. An effective active ownership program consists of voting and engagement. Robeco votes at shareholder meetings and engages with the senior management of listed companies to address ESG issues on behalf of its clients. Robeco will support voting across internally and externally managed portfolios and engage with companies held within internally managed sub-funds on our behalf. Border to Coast will look to work collaboratively with other like-minded investors and bodies to maximise its influence, particularly when it is more effective than acting alone. This will be achieved through actively collaborating with various other external groups and investor coalitions. To be able to effect change it is important to focus on specific ESG issues; areas of focus are governance, transparency and disclosure, and diversity.
In January 2017 the results of a tender for a Multi-Provider Framework Agreement for the Provision of Stewardship Advisory Services were announced. Manifest was successfully selected to offer services under Lot 1 : Voting Services and Lot 5: Stewardship-related project services.
To find out more information about Minerva’s LGPS support services please call +44 (0)1376 503500 or email email@example.com-OJS008-012793-en-1
Last Updated: 21 March 2017