A move to a professional trustee model from lay people in the UK was also mooted during a debate on manager selection at the Stewardship Summit 2024.
Insurer and pension provider Aegon UK has seen tangible improvement in aligning its asset managers with its responsible investment beliefs following targeted dialogue and monitoring.
Speaking at ESG Investor’s Stewardship Summit 2024, Samantha Chew, Stewardship Lead at Aegon, said the firm had a very structured approach for selecting and monitoring asset managers based on their responsible investment credentials. “It includes an annual responsible investment due diligence questionnaire and an ‘expressions of wish’ approach, where we monitor the shareholding voting alignment of key managers on the biggest holdings in our portfolio that [hold] the highest ESG risk,” she explained.
Each of Aegon’s asset managers has a responsible investment score, which feeds into the investment team’s asset allocation. Over the last two years, the firm monitored the progress of its work and found that the average responsible investment score for managers had increased from 56% to over 65%.
“We’ve also made material progress on the key engagement objectives that we have set for managers,” said Chew. “This includes better quality reporting on the outcomes of shareholder engagements and improved voting alignment. I’ve seen the highest support for environmental shareholder proposals by our largest asset manager.”
Aegon’s work in this area is still evolving, and its monitoring of asset managers on responsible investment will likely start to include policy engagement, reflecting limitations to shareholder engagement on tackling climate change.
“You can’t diversify away from a systemic risk like climate change,” said Chew. “We have to recognise that there are limits to influencing and engaging with corporates, especially if the policy environment is not heading towards 1.5°C.”
Language barrier
During the summit, Chew spoke on a panel focused on selecting managers, consultants and proxy firms for effective stewardship, during which much of the discussion focused on improving these groups’ relationships with asset owners and trustees.
Joanna Wright, Trustee at Avon Pension Fund, relayed the difficulty of getting to grips with financial language when she was first elected.
“I walked into a committee, and I knew nothing,” she said. “I had no economic background. I’ve been in that room for a year, and I’ve had to learn that language and understand that culture very, very quickly.”
Most occupational pension schemes in the UK are set up as trusts where lay people, elected by scheme members, typically act as trustees.
“It’s difficult to be a bridge between the finance world and pension scheme members who have different cultures, languages and views on issues such as the divestment of fossil fuels,” Wright added.
James Moore, Partner at investment consultancy LCP, expressed his sympathy for non-investment professionals in the space. “Investment consultants can be a lot clearer with the language and use less jargon,” he said. “But it would help if clients were also clearer on their objectives around ESG risks like climate change, such as taking a market-based approach or taking more of an ethical investment approach to the issue.”
Chew suggested that there was scope for further upskilling in terms of the competence and expertise of pension fund trustees, giving them the knowledge to meaningfully challenge and engage with investment professionals.
David Russell, Chair of the Transition Pathway Initiative and former Head of Responsible Investment at UK pensions giant Universities Superannuation Scheme went further, suggesting it might be time to move from the lay trustee model to professional trustees versed in managing “big pots of money”.
“When the UK trust-based model was developed, pension funds had no money, [but] we’re now a multibillion-pound sector,” he said. “Pension funds are massive, influential organisations and lay trustees come in with limited knowledge of the sector, the language and the issues.”
In response, Wright said it was important that she was elected as a trustee by pension scheme members. She also pointed to a keynote speech made during the summit by Steve Keen, Honorary Professor at University College London, in which he argued that economists’ assumptions on climate change risk were flawed, and unreliable. He also suggested that mainstream economic modelling on climate vastly underestimated associated financial risks, as it did not adequately reflect climate science.
“Looking at Professor Keen’s [findings], the economists aren’t using the right data,” Wright added. “So as a layperson who knows nothing about economics – how can you know [if] you are actually being told the truth?”
Keen is currently working alongside Tim Lenton, Chair in Climate Change and Earth System Science at the University of Exeter, to make climate scientists review the economists’ modelling on climate change. “We’re extremely confident 100% of those papers making absurd assumptions will be rejected by scientists,” he said.
