Fintech provider Tumelo is calling for the Financial Reporting Council’s (FRC) UK Stewardship Code to be updated, to ensure pension schemes engage with members on ESG issues.
It says an improved code should do more to nurture dialogue between companies and shareholders. These calls come after analysis of the 38 asset owners who have signed up to this code – almost exclusively pension schemes – found few are actively engaged in ongoing dialogue with members on issues such as energy policy and executive pay.
Tumelo says the code must look towards these scheme members as well as asset managers for ongoing feedback and guidance, in order to deliver better standards of stewardship.
The voluntary code sets stewardship principles which asset managers, owners, and service providers are invited to adopt. The principles include corporate purpose, strategy, governance, conflicts of interest, among others.
While signatories are asked to ‘take account’ of beneficiary needs, the code needs to go further to ensure their voices are heard, Tumelo says.
Tumelo CEO Georgia Stewart says: “We are in a better place with the code than we would be without it – and now we’re urging the FRC to go further. As an industry we must do more to hear from members on scheme policy, direction, and decisions, and the FRC is in a unique position to help via the code.
“It isn’t only about asking members what they think but playing back to them what trustees and asset managers are doing on their behalf and explaining how their views are affecting decisions. It’s about creating a sense of inclusion, engagement and influence.”
The FRC launched the code in 2010 and most recently updated it in 2020. It currently has one shy of 200 signatories across its three categories.
Signatories are asked to submit an annual stewardship report to the FRC explaining how they have applied the code over the previous 12 months, including, under principles 6 and 7, how they sought the views of shareholders, beneficiaries, or members.
However, an assessment of 38 asset owners showed only a handful of schemes had a form of structured, direct member engagement such as an annual survey or member panel.
Stewart adds: “One scheme had invited its members to share their views on sustainable investing, but this was a highlight. Others are doing very little. In some cases, we could find no evidence of reporting to or engagement with member beneficiaries while, in others, there was, at best, a ‘transmit only’ mindset, with little effort to engage in a dialogue with members, gather feedback or measure outcomes.”
Tumelo is also urging financial regulators to put shareholder engagement on the agenda and not take effective stewardship for granted, simply because the FRC code exists.
“This requires policymaker involvement too” Stewart said. “The FCA and DWP, for example, must not assume that all is well because a stewardship code exists and because it has signatures on it. We need to go further and ratifying member engagement via policy shouldn’t be off the cards.”