The Pensions and Lifetime Savings Association (PLSA) has released its updated annual Stewardship and Voting Guidelines.
The PLSA has this year focused on ensuring the guidelines remain relevant and interactive amid a rapidly evolving regulatory environment and increases in savers’ everyday bills. Five themes have emerged as having particular relevance for 2024: social factors, cybersecurity, artificial intelligence (AI), biodiversity and dual-class asset structures.
Social Factors
Since the advent of ESG, climate change has been at the forefront of investors’ minds since it poses far-reaching global financial risks.
Trustees demonstrating good practice are advised to assess materiality of social factors as well, prioritise relevant ones, and integrate them into stewardship policies, voting guidelines, and asset manager communications for effective risk management and systemic risk mitigation in pension portfolios.
Investors should ensure companies are accountable for their social impacts by aligning with evolving industry good practice.
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By GlobalDataCybersecurity
These risks can arise from the technology itself and from the people using it and the processes supporting it. It includes risks to information (data security) as well as assets, and both internal risks and external risks, such as hacking. Investors need to ensure that companies are managing these threats appropriately.
Investors should encourage companies to explicitly disclose the governance and oversight structures in place to identify and manage these risks, as well as provide timely reporting of any breaches and the measures taken in response.
Artificial Intelligence (AI)
Artificial Intelligence (AI) is likely to be one of the biggest technological leaps in history and has the potential to change the investment landscape.
Although AI has the potential to generate significant opportunities, it can also generate risks for businesses, including the amplification of discrimination, proliferation of misinformation and privacy violations – particularly in relation to generative technologies.
Biodiversity
In a year marked by severe wildfires, floods and other natural disasters, the impact of human activity on biodiversity continues to be of extreme importance. Investors and companies have a crucial role to play in the transition to sustainable business practices.
These changes in the natural world have direct impact on financial markets, supply chains and corporate profitability, with knock-on impact on pension scheme investments tied to sectors linked to biodiversity loss. As a result, pension schemes will need to begin to treat biodiversity with the same prominence given to climate change.
Dual-class asset structures
In recent years, there has been a significant increase in the number and proportion of initial public offerings (IPOs) that have dual-class share structures (DCSS). The growth in the prevalence of dual-class share structures and the potential loosening of regulatory requirements around the use of DCSS raises important questions for investors concerned about the integrity and operation of capital markets.
Navigating the Guidelines
This year’s edition has undergone some structural changes following a decade of yearly revisions. Annual updates of the Guidelines meant the document grew every year with new considerations for trustees. To enhance accessibility, the PLSA has created a static section on its regular content, a full report for new readers, and a condensed, updates-only piece for those already familiar with the Guidelines.
Commenting on this, PLSA head of DB, LGPS and investment, Tiffany Tsang, said: “As pension funds navigate the complex global investment landscape, it’s important that they blend an ambition to see good returns in the interest of scheme members with strong responsible investment practices.
“One of the main ESG objectives is to cultivate sustainable value for both businesses and investors. The unfolding green transition is undeniably the most significant global growth avenue in the foreseeable future. It’s pivotal for schemes not to sideline their stewardship duties, particularly in times when ESG considerations might be overshadowed.”
