Best Practice Guide

The emerging importance of environmental, social and governance (ESG) issues in the financial world leaves fundamental questions for the pension fund trustee, and it is important that there clear guidelines of how the fund get the best results. FairPensions has produced a series of Best Practices for Investment Managers and Pension Trustees that concentrate on disclosure, transparency and engagement and assist a fund to find a clear Responsible Investment policy. The Pension Fund Best Practice Guide provides an introduction to responsible investment and guidelines for success on ESG fundamentals.

A copy of the Responsible Investment Trustee Best Practice Guide is available here.

The guide explains why Responsible Investment has become a fiduciary duty and condenses a variety of sources from legal and industry bodies and the Myners Principles, into an easily digestible two-page document.

The guide also sets out the basic steps necessary to ensure compliance with best practice on Responsible Investment.

Although the document focuses on the duties of trustees with regard to Responsible Investment, it should also be noted that there are significant advantages for pension funds which adopt best practice:

• Enhanced monitoring of environmental, social and governance factors can be used to increase returns and lower portfolio risk (see research for more details).
• Responsible Investment entails better transparency for fund members and can therefore result in improved members' perception of, and relationship with, their pension fund.
• Lowering the risk of legal challenges to the parent company for breach of fiduciary duty (see the guide for more information)

The points in the Best Practice Guide form the structure of FairPensions' Annual Industry Benchmarks.

What is Best Practice?

The guide focuses on developing an maintaining a responsible investment (RI) strategy. To do this FairPensions recommends disclosing:

• The Statement of Investment Principles.
• At least the top 100 equity investments in the scheme.
• The annual voting record.
• Policies on RI integration into investment mandates and fund manager monitoring and reporting requirements.
• The specific engagement strategy (specific issues to be acted on), and the results and progress of these efforts.
  
  

In addition, transparency is provided through:

• A public website with a section on RI which includes the above information.
• A detailed RI section in the annual report, including results of key company and industry engagements, key votes and important initiative.
  
  

Responsible Investment also includes engagement, and a best practice engagement policy includes:

• A clear strategy for engagement, including priority issues and sectors, methods of engagement and targets.
• Identifying and disclosing the lines of responsibility for engagement.
• Establishing manager reporting mechanisms, trustee reviews of progress and assessment of RI performance.
• Ensuring fund managers (or other agents) have experience of RI and will engage and vote according to the policy, including proposing or supporting AGM resolutions.
• Requiring fund managers to actively participate in relevant collaborative RI networks.
  
  
  
  

• Responsible Investment
• RI Best Practice
• Our Work with Trustees
• RI Research