Stewardship should be on every pension scheme’s agenda, particularly given growing concern amongst members about ESG issues, and the Pensions Regulator’s forthcoming “single code” which asks that trustees follow the UK Stewardship Code “wherever possible”.

In this series, we will look at what this actually means for schemes and their sponsors, and share some invaluable advice from our team and the industry on how to get this right.

What is stewardship?

In a pensions context, “stewardship” means the responsibility schemes have to monitor, engage and intervene on matters that may affect the long-term value of their investments. These matters are wide, encompassing issues such as financial strength, governance, climate risk, human rights and workforce diversity.

Why it matters

Done correctly, better stewardship should not only improve the health of investee companies, but also of the economy and the environment. There is therefore an increasing buzz around stewardship, with government policy focussing on its potential for financial, societal and environmental transformation.

As mentioned, there is growing expectation from the government, regulators and society that schemes will understand the important role they have to play in influencing these outcomes.

When to act

Trustees have been under an obligation to set out their policies on stewardship since 2019; however, there are developments that all schemes need to be aware of.

What constitutes ‘effective stewardship’ is covered in the UK Stewardship Code. While voluntary, industry bodies such as the Pensions and Lifetime Savings Association (PLSA) encourage schemes to sign up to the code or to follow its best practice guidance, with the government expecting the same of schemes, service providers and public sector administering authorities. As it gains traction, employers may wish to ask how their scheme’s trustees are engaging with this.

Schemes will also need to watch out for future developments in this area, following BEIS’ very recent response to consultation on corporate governance: a review planned for 2023 will assess the efficacy of the code, and whether there is a need for further regulation in the stewardship arena.

The Pensions Regulator’s new “single code”, due to be published by the summer, should also act as impetus for schemes to review what they are doing. It asks that trustees follow the Stewardship Code “wherever possible”. Its own investment guidance discusses stewardship in detail, and it has urged “meaningful engagement” from schemes.

How to act

Although the concept of stewardship is not new, for many, it can feel difficult to pin down. Coupled with this is the reality that most schemes outsource their voting activities to their asset managers, many of whom rely in turn on proxy service providers or other voting research services.

The legal responsibility to ensure that stewardship is meaningful rests with trustees; schemes need to monitor both their investments and those in charge of them. As the Pensions Regulator states, trustees need to be clearer with their investment managers: “simply saying ‘do ESG stewardship for us’ is not enough”.

Trustees need to develop a stewardship strategy, communicate their expectations and challenge their managers and advisers where appropriate. Where they have voting rights, trustees should hold companies to account on issues that could have material impacts on the value of investments, through their shareholder engagement (both on a scheme and industry level). We are starting to see more schemes, both here and worldwide, flexing their muscles and expect this will be a growing trend.

The second article in this series will look at practical tips for schemes when exercising their investment stewardship rights.

UPDATE: the government published updated stewardship reporting requirements on 17 June 2022. See the forthcoming article in our Pensions stewardship series for a summary of the new guidance

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.

Written by

Sasha Butterworth

Sasha Butterworth

Date published

07 June 2022



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