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Investment

Department for Business, Innovation and Skills written question – answered on 23rd March 2015.

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Photo of Julian Huppert Julian Huppert Liberal Democrat, Cambridge

To ask the Secretary of State for Business, Innovation and Skills, what recent steps he has taken to encourage asset owners to do more to engage with investee companies as part of their stewardship duties.

Photo of Jo Swinson Jo Swinson Parliamentary Under-Secretary of State (Department for Education) (Women and Equalities) , The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The Government has taken a variety of significant steps to promote stewardship and engagement on the part of institutional investors. A key focus has been to work closely with the investment industry on initiatives involving both institutional investors and asset managers, acknowledging that while some institutional investors engage directly with companies, many others delegate to asset managers to engage on their behalf.

Specific achievements include:

  • a strengthening of the Stewardship Code to emphasise engagement on companies’ long-term strategy;
  • the creation of an Investor Forum to improve the amount and effectiveness of collective engagement by key institutional investors;
  • the development, by the National Association of Pension Funds, of a new Stewardship Disclosure Framework to encourage asset managers to report on their activities and to enable investors to hold them to account.

The Government has comprehensively reformed the legislative framework for corporate reporting to boost transparency on company directors’ remuneration and ensure annual reports are more focused on long-term company strategy. In this way we are encouraging companies to report the information which is relevant to long-term stewardship investors.

The Law Commission’s report on the fiduciary duties of investment intermediaries, commissioned by the Government, concluded that fiduciary investors such as pension scheme trustees should consider whether and how to engage with companies to promote their long-term success, either directly or through their investment managers. The Government is now taking forward the Law Commission’s recommendations in a number of areas, including by consulting currently on whether the Occupational Pension Schemes (Investment) Regulations 2005 should be amended to require trustees to state their policy on stewardship with reference to the Stewardship Code.

This work has been part of a broader commitment – in response to the Kay Review of equity markets - to address the longstanding concern that short-termism has impeded the creation of sustainable value by British companies. The Government published a comprehensive progress report on the implementation of the Review in October 2014. This is available online at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/367070/bis-14-1157-implementation-of-the-kay-review-progress-report.pdf

The Government is now undertaking further work in a number of areas, including:

  • supporting the work of the Financial Reporting Council to monitor how signatories to the Stewardship Code are delivering against their commitment;
  • supporting the work of the Association of Member Nominated Trustees (AMNT) to develop “Red Line Voting” – an initiative which will enable pension schemes and other investors to adopt common voting positions on a range of governance issues; and research to examine how shares are held by institutional and individual investors – to provide an insight into how the Government can encourage greater investment engagement.

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