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A transfer to an expert trustee mannequin from lay folks within the UK was additionally mooted throughout a debate on supervisor choice on the Stewardship Summit 2024.
Insurer and pension supplier Aegon UK has seen tangible enchancment in aligning its asset managers with its accountable funding beliefs following focused dialogue and monitoring.
Talking at ESG Investor’s Stewardship Summit 2024, Samantha Chew, Stewardship Lead at Aegon, mentioned the agency had a really structured strategy for choosing and monitoring asset managers primarily based on their accountable funding credentials. “It consists of an annual accountable funding due diligence questionnaire and an ‘expressions of want’ strategy, the place we monitor the shareholding voting alignment of key managers on the most important holdings in our portfolio that [hold] the very best ESG threat,” she defined.
Every of Aegon’s asset managers has a accountable funding rating, which feeds into the funding group’s asset allocation. During the last two years, the agency monitored the progress of its work and located that the typical accountable funding rating for managers had elevated from 56% to over 65%.
“We’ve additionally made materials progress on the important thing engagement targets that we now have set for managers,” mentioned Chew. “This consists of higher high quality reporting on the outcomes of shareholder engagements and improved voting alignment. I’ve seen the very best assist for environmental shareholder proposals by our largest asset supervisor.”
Aegon’s work on this space remains to be evolving, and its monitoring of asset managers on accountable funding will doubtless begin to embrace coverage engagement, reflecting limitations to shareholder engagement on tackling local weather change.
“You may’t diversify away from a systemic threat like local weather change,” mentioned Chew. “We’ve to recognise that there are limits to influencing and fascinating with corporates, particularly if the coverage setting just isn’t heading in direction of 1.5°C.”
Language barrier
In the course of the summit, Chew spoke on a panel targeted on choosing managers, consultants and proxy corporations for efficient stewardship, throughout which a lot of the dialogue targeted on enhancing these teams’ relationships with asset house owners and trustees.
Joanna Wright, Trustee at Avon Pension Fund, relayed the issue of attending to grips with monetary language when she was first elected.
“I walked right into a committee, and I knew nothing,” she mentioned. “I had no financial background. I’ve been in that room for a yr, and I’ve needed to be taught that language and perceive that tradition very, in a short time.”
Most occupational pension schemes within the UK are arrange as trusts the place lay folks, elected by scheme members, usually act as trustees.
“It’s troublesome to be a bridge between the finance world and pension scheme members who’ve totally different cultures, languages and views on points such because the divestment of fossil fuels,” Wright added.
James Moore, Companion at funding consultancy LCP, expressed his sympathy for non-investment professionals within the area. “Funding consultants generally is a lot clearer with the language and use much less jargon,” he mentioned. “However it might assist if purchasers have been additionally clearer on their targets round ESG dangers like local weather change, corresponding to taking a market-based strategy or taking extra of an moral funding strategy to the problem.”
Chew advised that there was scope for additional upskilling when it comes to the competence and experience of pension fund trustees, giving them the data to meaningfully problem and interact with funding professionals.
David Russell, Chair of the Transition Pathway Initiative and former Head of Accountable Funding at UK pensions large Universities Superannuation Scheme went additional, suggesting it is perhaps time to maneuver from the lay trustee mannequin to skilled trustees versed in managing “large pots of cash”.
“When the UK trust-based mannequin was developed, pension funds had no cash, [but] we’re now a multibillion-pound sector,” he mentioned. “Pension funds are huge, influential organisations and lay trustees are available with restricted data of the sector, the language and the problems.”
In response, Wright mentioned it was vital that she was elected as a trustee by pension scheme members. She additionally pointed to a keynote speech made through the summit by Steve Eager, Honorary Professor at College Faculty London, by which he argued that economists’ assumptions on local weather change threat have been flawed, and unreliable. He additionally advised that mainstream financial modelling on local weather vastly underestimated related monetary dangers, because it didn’t adequately replicate local weather science.
“ Professor Eager’s [findings], the economists aren’t utilizing the proper information,” Wright added. “In order a layperson who is aware of nothing about economics – how are you going to know [if] you might be truly being advised the reality?”
Eager is at present working alongside Tim Lenton, Chair in Local weather Change and Earth System Science on the College of Exeter, to make local weather scientists evaluation the economists’ modelling on local weather change. “We’re extraordinarily assured 100% of these papers making absurd assumptions might be rejected by scientists,” he mentioned.
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