This post from David Crum of Minerva analytics is profoundly disturbing
2020 – the year the investment industry dropped the ball on ‘Implementation Statements’
This was the first year that some UK Pension Schemes had to prepare ‘Implementation Statements’. I’ve personally attempted to collect voting and engagement information on behalf of over 20 UK pension schemes, to help them with their IS reporting. These schemes collectively have exposure to 40+ asset managers and over 200 separate investment funds.
For what should be a relatively simple request – ‘Can you please tell us if/how you voted for the Fund in which the scheme is invested – and also let us know if you undertook any engagements?’ – the paucity of decent responses has been a real eye-opener.
Range of responses:
1) Ignore the request
2) ‘That Scheme is no longer a client’
3) Point to general sustainability documents on websites
4) Acknowledge the request, but then…nothing
5) Provide partial response, missing voting/engagement info
6) Provide the info!
This is what we typically faced – so I wanted to thank a few firms that made decent efforts to help their clients: Legal & General Investment Management (LGIM)
Baillie GiffordRathbone Brothers PlcMobius Life LimitedColumbia Threadneedle Investments EMEA APACM&G InvestmentsInsight Investment
So what is so important about implementation statements to make me get worried?
To answer that we need to start by understanding what an implementation statement is and what it’s designed to do – this from the Pension Regulator’s website and relates to trust based DC schemes.
- Trustees do now have duties in relation to an implementation statement
They apply to DC schemes for annual reports and accounts produced since 1 October 2020 – this must cover all the SIP requirements, including ESG/climate change + Stewardship (voting and engagement) + All the boring information about asset allocation etc.
DB schemes have to produce a more limited implementation statement by 1 October 2021 – just covering stewardship (voting and engagement).
Trustees don’t yet have duties in relation to climate governance and TCFD. The DWP is proposing that the largest schemes and Master trusts have climate governance duties from 1 October 2021, with reporting to follow within 7 months of scheme year end. And that’s what their rumored consultation at the end of the month is intended to capture.
Put in a broader perspective, the implementation statement is the Trustee’s requirement to ensure that TCFD reporting is going on. If Trustees are not able to complete the implementation statement, then they are failing not just in their regulatory duties but in the wider duty to ensure that the assets under their control contribute to net zero emission targets.
The implementation statement will be rolled out to DB schemes in 2021 and is forming a part of the work of IGCs and pension platforms who produce chair statements and value statements respectively. If we cannot get TCFD reporting generally accepted, our hopes to make our money matter will be quickly extinguished.
Asset managers are desperate to be seen as ESG friendly – so what is the problem?
On the face of it, Environmental, Social and Governance considerations offer fund managers a way to add value and ESG friendly funds are being marketed to DC platforms with gay abandon.
However, while asset managers are keen to grow their assets – especially sticky DC assets – under management, they don’t seem so keen to report on how they are stewarding the assets they have already won. This is not surprising, the incentives for executives of asset managers are aligned to growth and not retention and there is little short-term benefit to asset managers in helping trustees or their representatives understand what is or isn’t going on in “the legacy”.
But what is more important right now – competing for new money or making the money invested in the past – matter?
I think it’s clear that many asset managers are allocating more resource to winning new business than to helping trustees with their TCFD reporting.
However, the public as a whole- and trustees in particular – are not going to be fooled by asset managers who compete for new mandates on their ESG credentials, but fail to deliver on TCFD reporting.
Well done Minerva
David Crum is right to bring this to our attention now. It is good to see that some asset managers are making “decent efforts” but it is not good to hear that many asset managers are failing.
Of course the job of trustees is also the job of the platform managers of contract based plans and we’ll no doubt see the same problems in getting reporting on TCFD to them.
We need organizations like Minerva to highlight shortfalls in reporting, just as we need ClearGlass to highlight problems with cost and charges disclosure.
We need to find ways to get this information to savers and right now I favor the positive approach of Minerva (which ClearGlass has also adopted), highlighting good practice. But if we don’t see an improvement from the dire state of affairs mentioned in David’s update below, we will need to see public naming and shaming.
The issues we’ve encountered are that precious little information is being disclosed, so Trustees like yourself have a very difficult task in ensuring their schemes are compliant with the new regulations. We expected a mixed level of responses for this first year, but the reality has been much worse than our expectations
The obvious way to do this is through the Pensions Regulator. If any asset manager is found to be consistently obstructing Trustees from producing implementation statements, then this information should be in the public domain.
There can be few better incentives to encourage immediate improvement than the prospect of being labelled a “green washer” but that’s what asset managers are when they preach but do not practice.