PLSA Adds Sustainability Section to Pension Governance, Voting Guidelines

UK pension group the Pensions and Lifetime Savings Association (PLSA)  on Thursday updated its 2018 Corporate Governance Policy and Voting Guidelines, and urged pension funds to exercise their investor rights on climate change-related risks.

Referencing its 2017 work, where the PLSA produced guidelines on climate change and its economic impacts for pensions funds, the coalition’s voting guidelines has now added a section on sustainability. The new guidelines recommend shareholders not support re-election of board chairs should they fail to provide a detailed risk assessment and response to the effects of climate change on their businesses.

“Companies in sectors affected by climate change and efforts to mitigate it should undertake rigorous examinations of whether their business model is compatible with commitments to mitigate global temperature increases and how they plan to address the issue of climate change. This also requires climate-related expertise at board level,” a subsection of the document reads. “Where, after attempts by shareholders to engage on this issue, companies fail to provide a detailed risk assessment and response to the effect of climate change on their business, and incorporate appropriate expertise on the board, shareholders should not support the re-election of the Chair.”

According to the document, the updated guidelines, “aim to assist investors and their proxy voting agents in their interpretation of the provisions of the Code and in forming judgements on the resolutions presented to shareholders at a company’s AGM.” The PLSA suggests that while its focus relies on what voting sanctions will apply to each company meeting, a vote against management should only be decided and enacted after the company in question’s explanation for non-compliance has been properly considered in light of the particular circumstances surrounding the issue.

In December, the Financial Reporting Council (FRC) proposed the PLSA make changes to its corporate governance code. The new code proposed changes that included the introduction of five new principles: leadership and purpose; division of responsibilities; competition, success and evaluation; audit, risk and internal control; and remuneration. According to the document, the code will also introduce new vehicles for stakeholder voice in corporate governance structures via the use of worker directors, non-executive directors with designated responsibility for stakeholder relations, or stakeholder committees.

However, the new code has yet to be finalized, and the FRC’s proposal is still subject to consultation. Therefore, the PLSA’s guidelines adhere to the governance code’s current incarnation.