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December 16, 2010
Transparency by UK Asset Managers Remains Low
    by Robert Kropp

A report by FairPensions finds an increase in policies addressing the integration of ESG issues by asset managers, but that many still do not disclose engagement activities.

After the revised UK Stewardship Code was published by the Financial Reporting Council in June, Eurosif described the document as a useful starting point, stating that the "European Commission should continue regarding shareholder engagement as a model for mitigating future governance failures."

A report entitled
Stewardship in the Spotlight, published this month by FairPensions, found that while 24 of 29 asset managers surveyed publish a compliance statement in response to the Code, "the quality of these statements is highly variable," according to FairPensions.

Furthermore, according to the report, "One of the most striking features upon a review of the various asset manager statements on the Code is the absence in many of reference to environmental and social issues." Arguing that "the Gulf of Mexico oil spill should have removed all doubt as to the financial relevance of environmental and social issues," the report recommends that "any future revised version of the Code should specifically require disclosure on how environmental, social and governance (ESG) considerations are integrated into the stewardship function of institutional investors."

Of the 29 asset managers surveyed, F&C Asset Management scored highest, with 19 out of a possible 20 points. F&C is one of ten asset managers that now "make public a comprehensive policy on how they incorporate environmental and social issues," (compared to only three in 2008). F&C is the only firm surveyed that provides a "resolution-by-resolution voting record of all votes cast worldwide with explanations provided for votes against management, votes on shareholder proposals and contentious votes."

F&C is followed in the rankings of FairPensions by Baillie Gifford, Newton Investment Management, and Hermes Fund Managers. Included among the lowest scores are those of Goldman Sachs and Morgan Stanley; "Standards of disclosure in the investment industry remain low," FairPensions noted, with 41% of asset managers still making no information public on engagement activities.

In identifying best practices for disclosure by asset managers, such as detailed policies on ESG integration and full transparency on voting records, FairPensions recommended that policymakers clearly state a willingness "to introduce mandatory voting disclosure" by asset managers. Future revisions of the Code should also broaden its focus beyond governance considerations to include environmental and social issues as well.

Asset owners should scrutinize the policies and practices of their asset managers to ensure that they have "adequately integrated ESG issues and active stewardship into their investment process," the report concludes.


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