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Governance outranks climate in pension scheme members’ ESG priorities, finds LGIM

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Environmental, social, and governance issues are receiving attention from pension scheme members in the UK, with shareholder resolutions concerning climate, remuneration, and rights receiving the most votes over the past year.

The UK’s largest asset manager, Legal and General Investment Management (LGIM), has analysed the votes of individual members in its DC pension schemes. 

More than 13,000 votes were cast by individual members of LGIM’s DC pension schemes between September 2020 and mid-2021, through the asset manager’s partnership with fintech firm Tumelo.

According to LGIM, pay was the most commonly-voted on ESG issue, accounting for almost a quarter of the total votes cast. Pension scheme members cast 3,120 advisory votes across 46 different resolutions on pay, which ranged from board remuneration, to supply chains and staff wages.

Previous research has also highlighted the importance of governance to investors. Governance was ranked the “most important” factor within ESG by asset managers, according to a separate study published by multi-manager investment firm Architas in June.

“It’s probably not surprising that governance is considered very important,” reads the report. “Quality corporate governance is the foundation of trust when investors give up their money.”

LGIM found that environmental resolutions trailed behind pay in numbers of votes cast by pension members, but climate was still the second most-voted on ESG issue, with 1,275 individual votes across 14 resolutions.

Interest in climate resolutions has surged in the past year, with shareholder activists winning battles against the boards of oil giants ExxonMobil, Chevron and Shell over the firms’ plans to cut carbon emissions.

Resolutions relating to the Paris Agreement, which aims to limit global temperature rises to 1.5 degrees above pre-industrial levels, also featured prominently, with 460 individual votes cast across two resolutions. Other environmental resolutions focusing on plastic, packaging and pollution were among the ten most-voted-on ESG issues.

Further social and governance topics were also high on pension scheme members’ ESG priorities, with resolutions focusing on human and animal rights coming in third by number of votes, followed by lobbying in fourth.

A small number of resolutions focusing on diversity also garnered attention from pension scheme members. Despite there being only three resolutions that concerned racial issues, this aspect of diversity gained enough votes to reach the top ten list in its own right.

The data comes from a partnership between LGIM and Tumelo, allowing 4,400 members across eight pension schemes to cast ‘advisory votes’ on pending shareholder proposals. 

Stuart Murphy, co-head of DC at LGIM, says that partnering with Tumelo to hear pension members’ voices is “already making an important difference”. 

“Pension Schemes and fund managers managing relationships with corporate boards are increasingly going to be able to consider and even reference this polling of scheme members,” says Murphy.

“Equally, and perhaps more importantly for the long term of the pensions system, this has opened up a new way for individuals to feel truly consulted about the detailed ways their retirement funds will shape corporate activity and society at large.” 

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