Mercer Releases Stewardship Service in Europe

(November 3, 2011) — Mercer has launched a new service to help institutional investors in meeting the requirements of the United Kingdom’s Stewardship Code.

“There is a growing view among academics and investment professionals that environmental, social and governance (ESG) issues does affect the short and long-term performance of institutional investment portfolios,” Will Oulton, Mercer’s Head of Responsible Investment for Europe, said in a statement. “It is the duty of trustees to act in the best long-term interests of their beneficiaries and we believe that effective stewardship can be an important element in both protecting and enhancing long-term shareholder value.”

David Paterson, Head of Corporate Governance at the National Association of Pension Funds (NAPF), said: “The NAPF is a strong supporter of the Stewardship Code and therefore welcomes this initiative from Mercer. By committing to the code and holding their managers to account for their stewardship, pension funds can help raise standards of governance in the investment industry as well as at the companies in their investment portfolios. To do this effectively they need tools such as the new service from Mercer.”

According to Mercer, while the UK Stewardship Code applies in the first instance to investment managers, the Financial Reporting Council (FRC) has stated that all institutional investors, including asset owners, must engage actively in the process, encouraging them to report if and how they have applied the code. Mercer is a signatory to the code.

Last year, Andy Banks, head of corporate governance at Legal & General Investment Management (LGIM), said the UK’s Stewardship Code has given shareholders the essential ability to consult with each other when issues arise at companies in which they invest. Banks stated in a release: “We do feel there is a receptive environment for more collective engagement. Investors are keen to do it and engage together. Companies should expect to be meeting groups of investors in the future.”

LGIM added that while relations between institutional investors and company management has faced difficulties in the past, the financial crisis has helped spur a new environment for corporate governance, stressing the role of non-executive directors in challenging management decisions. Banks urged companies to be more proactive in scrutinizing succession planning to maintain long-term value for shareholders.