Pension schemes are under increasing pressure from regulators and members to integrate sustainable investment practices. Further, where Trustees have not developed their own policies, they should be familiar with their manager’s polices and where appropriate, seek to influence them.
However, schemes which invest in pooled funds are reliant on the underlying manager’s voting policies. Excellent initiatives such as the AMNT’s Red Line Voting and calls to managers for ‘comply or explain’ have been frustrated by limited action and innovation in these important areas.
“When trustees invest, too often they are being asked to select funds in advance on vague or sometimes non-committal voting policies and historic voting records which are opaque, inconsistent and sometimes incomplete.”
– Guy Opperman, UK Minister for Pensions
AMX and asset manager DWS, in conjunction with Minerva Analytics and Northern Trust, have now developed a service for pooled funds which allows investors to express their voting philosophies. The AMX Investor Stewardship Service provides investors with choice from a range of voting philosophies, including the Red Line Voting principles.
The new service will aggregate investor stewardship preferences for each voting philosophy and seek to execute the votes in alignment with these wishes. Where voting philosophies may conflict on a specific vote, it is the intention of AMX to split the vote according to the proportional share of the underlying voting philosophies.
Facilitating better stewardship
At the Association of Member Nominated Trustees’ (AMNT) annual conference in 2020, Minister for Pensions, Guy Opperman, said: “When trustees invest, too often they are being asked to select funds in advance on vague or sometimes non-committal voting policies and historic voting records which are opaque, inconsistent and sometimes incomplete.”.
Subsequently the Taskforce on Pension Scheme Voting Implementation was established to encourage industry solutions which link investor preferences to corporate voting actions.
The AMX Investor Stewardship Service addresses all these concerns and paves the path for more industry participants to respond in kind. Now that the ‘impossible’ is indeed possible, all trustees are in a position to demand independent stewardship services for new equity pooled fund tenders by pension schemes across the UK.
This paradigm shift will begin the transition of voting power from investment managers to the rightful institutional asset owners and will increase the speed by which important climate change and governance issues are addressed by corporate stewards across the globe.
How it works in practice:
- Each investor makes an investment into the same AMX pooled fund. DWS can manage any equity index strategy within the pooled fund. At onboarding the investor selects their preferred voting philosophy.
- The stewardship provider, Minerva Analytics, develops the rules for each philosophy to create a voting template which guides how votes are expressed. They aggregate the unit holder positions in the fund to determine the total assets guided by each voting template. And finally, they communicate the vote decision to the custodian for the fund. In some cases, this may be a split vote within the fund.
- The custodian, Northern Trust, sends the vote(s) to the sub-custodian in each country where the company is listed on the stock exchange and they in turn communicate directly to the company. After recording the vote(s), the confirmation process returns through the same chain.
- Reporting is provided by AMX to each investor on how the votes were cast. Reporting helps the trustees prepare their Implementation Statements, but with an important twist. The ‘material votes’ included in the Implementation Statement will have been selected by the investor, not by the manager.
- The first fund to offer the new service is expected to be a low carbon/climate transition equity strategy managed by DWS, with new pooled funds to be supplied on demand.
A version of this article was first produced for the amnt.org quarterly newsletter, April 2021.
Photo credit: Vaibhav Bheda