The UK’s largest pension funds have put pressure on fund managers to make the case for their responsible investment strategies, publishing a guide intended to “break down the information barriers” between schemes and managers.
The schemes, as part of a group that holds collectively £200bn in assets, expect the guide to show managers how to share the ways they identify and manage risk in public equity holdings, and how they manage engagement and voting.
The BT Pension Scheme and Universities Superannuation Scheme, the UK’s largest and second-largest pension funds by assets, developed the guide alongside 14 other high-profile schemes including the Pension Protection Fund and Lothian Pension Fund.
Daniel Ingram, head of responsible investment at the BT Pension Scheme, said the guide aimed to improve the reporting quality of responsible investment factors.
“We know they’ve got the data, but they just haven’t shared it with us in a usable form yet,” said Ingram. “We’re still trying to build a better understanding of how these types of longer-term factors are affecting performance and risk.”
The guide states it is not intended to be a stringent requirement, but instead a way to “encourage continuous improvement” in responsible investment reporting within a “mutually acceptable time frame”.
The guide states: “Where fund managers suggest that they already integrate responsible investment in their investment processes, we expect ongoing reporting to help us understand in more detail how, and under which circumstances, these activities are taking place.”
It continues: “Only through explicit responsible investment reporting will we be able to build our understanding of the extent to which responsible investment factors and activities can help to explain short and long-term risk and performance.
“We believe better responsible investment reporting can help to create a more disciplined approach to explaining the rationale behind particular decisions.”
Schemes have been increasingly focused on socially responsible investment since the Law Commission published its report on fiduciary duty for investment intermediaries last year.
The report said trustees could take into account environmental, social and governance factors when investing, without breaching their primary duty to maximise investment return.
Simon Howard, chief executive of sustainable investment trade body UKSIF, said more transparency was needed as trustee responsibilities become better defined.
He added: “The bar for stewardship has been lifted by the Law Commission report. Trustees need to be told more, they want to be told more.”
Lisa Beauvilain, head of sustainability and ESG at asset manager Impax, said schemes should ask for “much more” information from fund managers.
Beauvilain said: “Pension funds are a very large – and probably the most influential – investor group for influencing responsible investing.”
She added the pressure on investment managers was increasing from responsible investment institutions as the United Nations-backed Principles for Responsible Investment has tightened its annual transparency reports to be more comprehensive.
“I think this is something that’s increasing in the SRI institutions,” she said.
