here - The Association of Member Nominated Trustees

 Table of Contents (click on the page number for direct link) Why has AMNT developed Red Line Voting? ............................................................ 1 Why is this important? ..................................................................................................... 1 Why can't every pension scheme set an active responsible investment policy already? .................................................................................................................... 2 How will Red Line Voting help? .................................................................................... 3 Are the Red Lines to be applied globally? ................................................................. 3 What are the Red Lines? .................................................................................................. 3 How does it work? ............................................................................................................. 3 What assistance has AMNT had in this project? ...................................................... 4 Have you consulted AMNT members? ........................................................................ 4 What happens if we approve the Red lines on 24th June? .................................... 4 Why has AMNT developed Red Line Voting? We have being developing this over the last two years because the majority of pension schemes are in practice unable to set an agenda for their fund managers' engagement (discussions) with the companies they invest in, nor to direct how their votes are cast at company meetings. Some have been told they are too small to get involved in this. We want to enable all pension schemes, no matter how small, to be able to direct their fund managers' engagement and voting and hold them to account for their activities on the pension scheme's behalf. Why is this important? First, it is extremely important to ensure that the companies you invest in are well run because failures of governance can lead to pension schemes losing money in both the short and long term. For example, companies that are exposed as being involved in dubious practices or not treating their employees well have suffered reputational damage, consumer boycotts and/or industrial action; others that have broken the law or regulations have been ordered to pay vast fines. Poor management or lack of concern for health and safety can result in horrifying accidents such as the Bhopal disaster which killed an estimated 22,000 people in India and which 30 years on continues to threaten serious fine and business risks for the parent company. It is easy to see how these failures result in drop in share price and cut dividends, quite apart from any unease they might induce in those who see themselves as having some responsibility as owners. So it makes sense for trustees who wish to protect their members' investments for the short and the long term to take very seriously the environmental, social and corporate governance (ESG) policies and activities of the companies in which they invest. This is called Responsible Investment. It is about good stewardship of the companies that your pension scheme already invests in. This is different from what is known as "ethical investment". Ethical investment is about making decisions as to which companies to invest in, or divest from, on the basis of ethical concerns. Our initiative does not involve ethical investment in this sense – Red Line Voting is all about how you protect the investments your pension scheme already has. Second, the buck stops with the trustee board, not the fund manager, and pension scheme trustees have come under greater and greater pressure, from the government, the Kay Review and many other inquiries and reports, to take their ownership responsibilities seriously. We have been accused of being asleep at the wheel. You may also have read that in addition to increasing demands from pension scheme members that their scheme moves in this direction, there are emerging suggestions that legal action may be taken against pension scheme boards that do not take the risks of climate change into account with the companies they invest in. So pension scheme boards need a way to respond to this growing concern but currently most are in practice unable to. Why can't every pension scheme set an active responsible investment policy already? Because most pension schemes invest in pooled funds. Instead of investing directly in a company they pool their money with other investors into a fund and the fund itself invests in companies. According to the Investment Association of the £5-­‐trillion of assets under management in the UK, nearly half is invested in pooled funds. Most managers of these pooled funds are reluctant to allow the investors to direct how the votes associated with their investments are cast at company meetings because they believe it would be too complicated if many investors started issuing many different voting instructions. How will Red Line Voting help? Red Line Voting is designed to enable these asset owners (pension schemes) to direct the engagement and voting of their investments while at the same time making it easy for the fund managers to handle. Fund managers will, we hope, receive Red Line Voting instructions from many clients, but they will all be the same instructions so they will not have the problem of many different instructions. Are the Red Lines to be applied globally? No. They are being developed solely for use with companies listed on the London Stock exchange. What are the Red Lines? The Red Lines are a set of tightly drawn voting instructions covering a wide range of environmental, social and governance issues. We developed the governance Red Lines after studying the voting and engagement policies of our members' largest pension schemes, finding a consensus among them, and basing our Red Lines on the consensus. These are designed to implement the Financial Reporting Council's UK Corporate Governance Code (https://www.frc.org.uk/Our-­‐Work/Codes-­‐Standards/Corporate-­‐
governance/UK-­‐Corporate-­‐Governance-­‐Code.aspx) We were advised to base our environmental and social Red Lines on the UN Global Compact which we have done. (https://www.unglobalcompact.org/abouttheGC/thetenprinciples/index.html) Once the Red Lines have been approved by AMNT members on 24 June at our conference at BNY Mellon and Insight, they will be freely available to be adopted. How does it work? Pension schemes can choose to adopt all or some Red Lines. Those who adopt the Red Lines will instruct their fund managers to comply with them. The fund managers are at liberty to vote contrary to a Red Line if in their judgement it is more appropriate in an individual case to do so, but if they do they are required to explain why they did. Wh
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25th May.