UK parliament committee asks FCA for ESG voting initiative update

Out-Law News | 23 Oct 2019 | 1:31 pm | 1 min. read

A UK parliamentary committee has asked financial regulator the Financial Conduct Authority (FCA) to respond to a complaint that fund managers are allegedly not allowing pension scheme trustees to direct the votes relating to their investment by using standardised voting instructions on environmental, social and governance (ESG) issues.

The Association of Member Nominated Trustees (AMNT) has created a mechanism by which fund managers can be directed by their clients to cast votes at shareholder meetings of the companies they are invested in, according to 'Red Lines' their clients have adopted.. The 'Red Lines' relate to ESG issues and were designed so smaller pension schemes and those investing in pooled funds could direct the votes associated with their investments to take account of ESG issues. Pension schemes can adopt all or some of the Red Lines. Although fund managers could receive Red Line voting instructions from a number of their clients, the instructions on a particular issue covered by the Red Lines would be the same. Fund managers can vote contrary to the Red Line instructions, if they consider it is not in their client's interests to comply,giving an explanation.

The AMNT complained to the FCA in May 2019 that such stewardship by pension fund trustees was allegedly being rebuffed by the fund management industry and that this represented an alleged market failure that should be investigated by the FCA.

The Treasury Committee has now written (2-page / 129KB PDF) to the FCA asking it to explain what action it has taken and its findings since receiving the AMNT's complaint and if "the Red Lines issue" has been "a topic of concern" in dialogue with any other regulatory bodies that are interested in effective stewardship, such as the Pensions Regulator and Financial Reporting Council.

The Treasury Committee also asked the FCA if it thinks it is possible "for pension schemes to develop robust ESG policies and take savers' views into account, if fund managers choose not to act on the stewardship policies of their clients?"