Sixteen UK pension funds with assets over £200bn have published A Guide to Responsible Investment Reporting in Public Equity. This collective group of pension funds believe that responsible investment (RI) reporting can help improve the transparency and accountability between asset owners and fund managers. 

The guide has been developed as part of the supporting pension funds’ wider efforts to include RI in fund manager selection and monitoring processes including, for example: requests for proposals, manager searches, due diligence and investment mandate terms.

“We encourage public equity fund managers to use this guide as an opportunity to take a step back and reflect on their approach to responsible investment. We ask the portfolio managers in particular to share with us their valuable insights on responsible investment at both the portfolio and stock level,” said Daniel Ingram, head of responsible investment at BT Pension Scheme Management. 

“Communication is key to long-term relationships. Long-term relationships are key to financial performance. We want good quality, meaningful reporting from our fund managers to support this. The guide provides an excellent tool to make real progress,” said Dawn Turner, head of pension fund management, Environment Agency Pension Fund.

The pension funds supporting this guide believe better reporting of Environmental, Social and Governance (ESG) data and stewardship activities in public equities could help determine the extent to which these factors contribute to long-term risk adjusted returns. The guide will be utilised by them to help inform their engagement with, and monitoring of, both current and prospective fund managers. It is hoped the guide will also be used by other pension funds.

"The Financial Reporting Council (FRC) welcomes this initiative to increase the level of accountability through the investment chain and encourages owners and managers to work together to improve the standard of reporting on responsible investment," said David Styles, director of corporate governance, FRC, the UK’s independent regulator responsible for promoting high quality corporate governance and reporting. 

While some of the specific reporting expectations will be more relevant for some investment strategies and styles than others, the guide provides fund managers with a set of emerging best practice standards in RI reporting.

The guide is divided into two parts of core RI reporting activity:

1. ESG integration: the transparent processes for considering ESG factors in the manager’s investment process including examples. We expect ESG integration to be applied in different ways depending on the fund manager’s investment style and process.
2. Stewardship: the policies and processes for identifying companies for engagement and for voting stocks; voting and engagement activities, and evidence of outcomes from those activities. Building on the Financial Reporting Council’s Stewardship Code, we regard stewardship activities as a core requirement for both passive and active public equity managers.