The Pension and Lifetime Savings Association has strengthened its stewardship and voting guidelines to reflect the recent Covid crisis and new climate regulations.
These guidelines warn pension fund investors to check whether companies response to the pandemic has impacted their governance and workforce practices. This must be a priority for this forthcoming AGM season according to the PLSA.
The new guidelines have been published to coincide with the PLSA’s annual Investment Conference. The guidelines are an important resource for pension trustees, providing practical guidance for schemes considering how to exercise their vote at annual general meetings.
The revised guidance highlights the following key areas:
- Virtual AGMS: Since the UK entered the first period of lockdown in March 2020, virtual AGMs have become the ‘new normal’, enabled in law by the Corporate Insolvency and Governance Act on 26 June. The PLSA supports the provisions introduced by the Government and companies to ensure that AGMs can happen virtually during these unprecedented times. However, given concerns about how this may reduce investor engagement, the PLSA advises voting against any motion that would make virtual AGMs permanent, rather than specifically linked to Government policy, or with a sunset clause attached. The Voting Guidelines encourage investors to seek assurances from companies that they are looking at how to use virtual AGMs to not only protect investor engagement opportunities, but increase them.
- Pay and renumeration: Remuneration is seen by many investors as a litmus test for wider corporate governance practices; it encompasses board effectiveness and leadership, challenge and oversight, as well as strategy and risk management. The PLSA Stewardship Guide says significant pay discrepancies between a company’s senior executives and the rest of the workforce, as well as those based on gender or ethnicity, can be a signifier of wider issues with a workplace’s culture and processes. This has become particularly sensitive in the Covid era, where many companies have had to make tough financial decisions relating to workforces, and made use of Government support in order to pay wages. Consideration should be given to how the company has been impacted by the Coronavirus, the level of financial support accepted from Government, and how this might impact the perception of remuneration among stakeholders.
- Climate change: With the COP26 summit due to be hosted in the UK in November, the guide has also been strengthened to reflect the Taskforce on Climate Related Financial Disclosures (TCFD) reporting requirements on premium listed companies, which may also bring in scope smaller companies in the coming years. The guide reminds pension scheme investors that large companies should have clear evidence that they are either reporting against the TCFD framework, or preparing to do so, and that investors should consider voting against a company’s climate change and sustainability policy if they cannot demonstrate this.
PLSA deputy director, policy, Joe Dabrowski says: “Investors recognise how incredibly tough the last 12 months have been for companies to navigate. From adapting to new remote working practices and technology, transforming their operations to a socially distant world, reacting to changing government guidance, reorganising workplaces to make them Covid safe and making difficult staffing decisions; not to mention the tragic personal toll the virus may have had on staff and their families.
“Whilst being empathetic to these issues, AGM season is an opportunity for pension scheme trustees and their asset managers to engage with company directors, to revisit environmental, social and governance policies and seize the chance to build back better than before.
“This is not only the right thing to do, numerous studies have shown that companies that uphold the highest ESG standards tend to financially outperform as well, adding value to the millions of pension savers they count among their shareholders.”
Having undertaken a substantial review of the guidelines in 2020, the PLSA has this year focused on ensuring they remain relevant amid the challenges posed by Covid-19 and a fast moving regulatory environment particularly in relation to assessing climate risk.