ESG: UK pension fund prioritises AGM voting power over lending revenue
19 June 2020 Edinburgh
Image: Andrii Yalanskyi/Shutterstock.com
A major UK pension fund is prioritising voting power on its environmental, social and governance (ESG) agenda over securities lending revenue by implementing an automatic recall facility ahead of annual general meetings (AGMs).
Lothian Pension Fund (LPF), Scotland’s second-largest pension scheme with more than £8 billion
in assets under management, says it has adopted service for its lending programme in order to bring the full weight of its shareholding to bear on ESG-related AGM votes.
The fund approached its custodian, Northern Trust, in late 2019 to request an automated proxy support service for its programme that would trigger a recall of loan positions automatically whenever relevant meetings were announced.
LPF portfolio manager Albert Chen, who was central to the discussions, says that the fund is willing to accept a reduction in lending income in order to gain the ability to utilise its entire shareholding for votes.
Explaining the fund’s ESG stance, its CEO, Doug Heron, says: “As a responsible investor it’s vital that we use our votes to make the maximum impact we can on behalf of our stakeholders. If this means sacrificing fee income because it’s the right thing to do, then we’ll do that.
“This is a progressive move by the investment team at LPF, but we believe that it will set the standard for management of stock lending going forward.”
Meanwhile, LPF’s chief investment officer, Bruce Miller, notes that the fund has always excluded a portion of each portfolio from the securities lending programme in order to participate in AGMs of every company it holds.
“Over the last few years our voting, particularly on climate issues, has become more active,” Miller explains, pointing to LPF’s membership of Climate Action 100+, an investor initiative launched in 2017 to encourage companies responsible for high levels of greenhouse gases to reduce their output, as an example of the fund’s commitment to ESG principles.
LPF was also involved in co-filing of last year’s climate resolution at BP, the British oil and gas giant.
Miller adds: “We must make every effort to have the greatest impact we can in votes that we believe in.
“Ensuring the efficient and timely return of stock in the lending programme allows us to have the biggest impact on behalf of our members.”
Elsewhere, Miller reassures the industry that he doesn’t believe lending stocks has an impact on the long-term returns of the portfolio and describes securities lending as a “key part of an efficient market”.
“Stock lending also generates significant fee income for LPF, providing a boost to the long-term performance of the fund,” he states.
Mark Jones, head of securities lending for Europe, the Middle East and Africa at Northern Trust, adds: “As their securities lending provider, Northern Trust is committed to helping clients meet their ESG and broader corporate governance objectives – and providing options for voting requirements is one of a number of ways we can do this.
“The solution we have implemented with LPF closely supports these objectives within a securities lending programme that remains focused on delivering sustainable, long-term returns for members.”
Lothian Pension Fund (LPF), Scotland’s second-largest pension scheme with more than £8 billion
in assets under management, says it has adopted service for its lending programme in order to bring the full weight of its shareholding to bear on ESG-related AGM votes.
The fund approached its custodian, Northern Trust, in late 2019 to request an automated proxy support service for its programme that would trigger a recall of loan positions automatically whenever relevant meetings were announced.
LPF portfolio manager Albert Chen, who was central to the discussions, says that the fund is willing to accept a reduction in lending income in order to gain the ability to utilise its entire shareholding for votes.
Explaining the fund’s ESG stance, its CEO, Doug Heron, says: “As a responsible investor it’s vital that we use our votes to make the maximum impact we can on behalf of our stakeholders. If this means sacrificing fee income because it’s the right thing to do, then we’ll do that.
“This is a progressive move by the investment team at LPF, but we believe that it will set the standard for management of stock lending going forward.”
Meanwhile, LPF’s chief investment officer, Bruce Miller, notes that the fund has always excluded a portion of each portfolio from the securities lending programme in order to participate in AGMs of every company it holds.
“Over the last few years our voting, particularly on climate issues, has become more active,” Miller explains, pointing to LPF’s membership of Climate Action 100+, an investor initiative launched in 2017 to encourage companies responsible for high levels of greenhouse gases to reduce their output, as an example of the fund’s commitment to ESG principles.
LPF was also involved in co-filing of last year’s climate resolution at BP, the British oil and gas giant.
Miller adds: “We must make every effort to have the greatest impact we can in votes that we believe in.
“Ensuring the efficient and timely return of stock in the lending programme allows us to have the biggest impact on behalf of our members.”
Elsewhere, Miller reassures the industry that he doesn’t believe lending stocks has an impact on the long-term returns of the portfolio and describes securities lending as a “key part of an efficient market”.
“Stock lending also generates significant fee income for LPF, providing a boost to the long-term performance of the fund,” he states.
Mark Jones, head of securities lending for Europe, the Middle East and Africa at Northern Trust, adds: “As their securities lending provider, Northern Trust is committed to helping clients meet their ESG and broader corporate governance objectives – and providing options for voting requirements is one of a number of ways we can do this.
“The solution we have implemented with LPF closely supports these objectives within a securities lending programme that remains focused on delivering sustainable, long-term returns for members.”
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