responsible investment reportingHow should fund managers report to pension funds on their responsible investment (RI) activities?

In an attempt to improve the quality of ESG and stewardship reporting, sixteen of UK’s largest pension funds, with a collective worth of £200bn, have published a report designed to increase accountability and transparency between asset managers and owners. The 2105 publication, Guide to Responsible Investment Reporting in Public Equity, lays out how fund managers can report ESG factors to investors. The guide will be utilised by the funds to help inform their engagement with, and monitoring of, both current and prospective fund managers.

Historically, many managers have been reluctant to offer in-depth ESG reporting, however the authors believe that the long-term benefits that arise from greater transparency and accountability will outweigh any short-term incremental reporting costs.

Better Responsible Investment Reporting

Fund managers are asked to consider two broad categories for improved RI reporting:

ESG Integration

The transparent processes for considering ESG factors in the manager’s investment process including examples.

Stewardship Code Reporting

This guidance covers the policies and processes for identifying companies for engagement and for voting stocks; voting and engagement activities, and evidence of outcomes from those activities. Building on the Financial Reporting Council’s Stewardship Code, the authors regard stewardship activities as a core requirement for both passive and active public equity managers.

Although the recommendations may be more relevant for some investment strategies than others, it notes that stewardship activities should be considered a ‘core requirement’ for both passive and active public equity managers. This is consistent with the guidance from The Pensions Regulator which requires trustees to make stewardship and ESG issues an integral part of their Statement of Investment Principles

The funds involved in the initiative includes the BBC Pension Trust, the Unilever UK Pension Fund and the BT Pension Scheme (BTPS). Daniel Ingram, Head of Responsible Investment at BTPS, said he hoped the guide will encourage fund managers to share the thinking behind their investment decisions. ‘What asset managers tell us they are going to do in terms of responsible investment when they pitch for our business, and what they actually deliver, can be very different,’ he said. ‘We encourage public equity fund managers to use this guide as an opportunity to take a step back and reflect on their approach to responsible investment. We ask the portfolio managers in particular to share with us their valuable insights on responsible investment at both the portfolio and stock level.

Other large investors involved in publishing the guide include Railpen, the Kingfisher pension fund and USS Investment Management. Dawn Turner, head of pension fund management at the Environment Agency Pension Fund and a supporter of the guide, said the document will be an excellent tool for furthering progress. ‘Communication is key to long-term relationships,’ she said. ‘Long-term relationships are key to financial performance. We want good-quality, meaningful reporting from our fund managers to support this.’

David Styles, Director of Corporate Governance, Financial Reporting Council, the UK’s independent regulator responsible for promoting high quality corporate governance and reporting, said: “A Guide to Responsible Investment Reporting in Public Equity provides a useful framework for discussion between owners and managers about continuing reporting expectations. The FRC welcomes this initiative to increase the level of accountability through the investment chain and encourages owners and managers to work together to improve the standard of reporting on responsible investment.

Minerva’s GovernanceWatch service offers a consolidated reporting function enabling asset owners to draw together their portfolio managers disclosures into a single, consistent and accessible format.

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Last Updated: 11 January 2024