Stewardship for pension schemes: our top tips

In the first article in this series, we explained what stewardship means in relation to pension schemes and why this is becoming increasingly important to get right.

But while the concept may now be clear, understanding how to properly exercise stewardship rights in complex investment arrangements (including pooled funds) is not always straightforward.

Here are our top tips for exercising stewardship in practice:

• Check that your asset managers are signed up to the UK Stewardship Code: All UK-authorised asset managers are required by the FCA to produce a statement of commitment to the code, or explain why they have not.
• Create your own stewardship expectations: This can be done in a simple policy document that sets out your investment beliefs and goals, including your approach to ESG factors including climate change, and to voting decisions based on these investment beliefs. Share this policy with asset managers prior to their appointment where possible, or as soon as possible thereafter.
• Record your expectations for outsourced stewardship in legal documents: The most effective way of ensuring asset managers are held to account is to ensure expectations are clearly set out in legal documents such as the investment management agreement.
• Engage meaningfully: Take time to understand your asset manager’s ‘house’ approach to investment, ESG and stewardship, and ask for further information from them where needed. Consider your next steps if stewardship isn’t influencing as desired.
• Document your expression of wish on voting across all pension investment structures (in line with your expectations where possible).

In addition, and more generally:

• Ensure you have a sufficient level of knowledge and understanding to effectively scrutinise your investments and managers. Stay on top of developments and up to date with the Pensions Regulator’s guidance on investment engagement and climate risk. Seek advice and training.
• Ensure the issue stays on your agenda – diarise to review and repeat.

Employers: ensure you are aware of your trustees’ obligations, and work to support them. Dialogue between employer and trustee is vital. You’ll want to ensure that the investment policy of the pension scheme isn’t out of step with your company’s ESG agenda. Expect your schemes’ trustees to be asking questions of you, particularly as new requirements under the Pensions Regulator’s forthcoming “single code” and the Pension Schemes Act 2021 come into force. And ensure you understand the interaction of investment choices with your scheme funding obligations.

The third article in this series will share thoughts from the industry on how schemes can ensure they are exercising their investment stewardship rights correctly.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.