Shareholders go to war on climate, gender, exec pay

The Investment Association (IA) — the powerful trade group for the UK fund management industry — on Thursday outlined its expectations of companies on issues including climate change, executive pay, audit quality and diversity ahead of this year’s AGM season.

The IA’s 250 members manage £7.7 trillion of assets. 

The IA, whose members own one third of the value of UK listed companies, for the first time is asking companies to explain in their annual report the impact climate change will have on their business model and “how these risks are being measured and managed.”

The IA said IVIS, its Institutional Voting Information Service, will be tracking companies’ progress, with investors wanting to see significant movement towards reporting in line with the Task Force for Climate-related Financial Disclosures (TCFD) recommendations by 2022. 

This will see companies reporting on climate-related risks “in a consistent, clear and comparable manner, enabling investment managers to make better informed investment decisions.”

Andrew Ninian, Director for Stewardship and Corporate Governance at the Investment Association, said: “With one third of the FTSE owned by IA members, our industry is looking to the UK’s largest listed companies to demonstrate that climate change is being taken seriously in boardrooms. 

“Climate change could result in a significant loss of value in companies if risks are not effectively measured and managed, ultimately hitting savers’ pockets. 

“Companies need to be looking at the impact of climate change on their business, products and strategy and set out to investors how they are responding to these risks.”

Investment managers will also be increasing the pressure on companies to improve gender diversity at a senior level, and to bring executive pensions in line with the rest of the workforce.

This year, for the first time, IVIS will give a “red-top” — its highest warning level — to companies which have 20% or less gender diversity in their senior leadership teams, in addition to their boards.

On executive pensions, IVIS will now be giving a “red top” to those companies with an existing director who has a pension contribution of 25% of salary or more “and has not set out a credible plan to reduce that contribution to the level of the majority of the workforce by the end of 2022.”

Audit quality also remains a huge concern for fund managers.

“Investors rely on the quality and robustness of a company’s financial reporting to make good investment decisions and to hold management and boards to account,” said the IA.

“In this year’s AGM season, investors will be looking to audit committees to better explain how it assessed the quality of the audit and, when necessary, challenged management judgements.”