Independent trustee and governance services provider PTL has warned that the industry should proceed “with caution” when it comes giving members the illusion they have voting rights on shares in their pension scheme.
The warning comes as Legal & General Investment Management is rolling out new technology from fintech start up Tumelo, allowing scheme members to vote on shareholder resolutions. After a successful pilot it is understood that LGIM is introducing this technology with around 40 schemes.
Technology like Tumelo is being used to engage scheme members on a range of issues, particularly relating to environmental, social and governance (ESG) issues, such as climate change.
But PTL managing director Richard Butcher says that while such technology can boost engagement there are potential downsides which are not always fully acknowledged.
Members could become disllusioned realising they cannot make huge differences, and this could lead to them opting out of pension savings he warned.
“Much is being said around voting at the moment, not unsurprisingly given the vitally important role trustees have to play in stewardship and the AGM season upon us. However, when it comes to giving members a sense they have a say in those votes it becomes far more complicated and we risk creating a dangerous illusion for them.
“Stewardship is our chance to influence the companies we invest in to adjust their business to ensure they also manage ESG risk and, in the process, become more sustainable.
“But, and it’s a big but, most schemes invest in pooled funds which presents two critical challenges that are hard for trustees to overcome. First and foremost, due to intermediation, schemes rarely have ownership rights and are often several steps removed from the actual legal owner. Then there’s the issue of scale; a handful of schemes may command the attention of the managers, but the majority, in isolation, will not.”
Butcher added: “All of this means that the ability of most schemes to influence is pretty weak with the one ‘real’ power, currently, being the threat to fire their manager – and it’s debatable how effective that is.
“In these circumstances giving members a sense they can influence a vote is a wrong and creates a potentially dangerous scenario that could give rise to member dissatisfaction. In a worst-case scenario it could lead to opt outs, a potentially disastrous unintended consequence that we need to do our best to avoid.”
Butcher concluded: “Lots of work is being done on how to give trustees genuine leverage when it comes to voting, and we not only welcome but are active participants in that and it’s great to see the industry tackling the climate emergency. The key part now it to demonstrate to the members that their investments are doing good things for the world we live in – without giving them any false illusion of power.”
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