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New pension fund trustee guide gives priority to long term value

New pension fund trustee guide gives priority to long-term value

Tomorrow’s Company calls for comply-and-explain to apply to pension fund trustee mandates Tomorrow’s Company, the London based global business think tank is launching a guide for pension fund trustees to achieve long-term financial returns, backed by business and finance leaders. The most fundamental pension fund trustee duty is to oversee and to assess the cost-effective transformation of retirement savings into pension scheme assets. Pension fund trustees play a pivotal and central role in shaping investment strategies to achieve secure financial returns for beneficiaries. To better achieve these it is increasingly important that long-term value shapes the fundamental beliefs of the pension fund board as well as frames the mandate of the pension fund trustee. This is a challenge but also an opportunity for pension fund trustees, as recognised in the recent publication of the Kay Review. Tony Manwaring, Chief Executive, Tomorrow’s Company stated:

This guide provides pension fund trustees with practical support in their role. This is a time of opportunity, as well as of challenge. In securing the long-term interests of beneficiaries, it is important to protect the interests of savers and to secure the long-term interests of people, profitable companies and the planet. Linked to this is a view of value, supported by evidence, which is fit for purpose and which will support the judgements trustees reach.Tomorrow’s Company calls for the implementation of a mandatory comply-and-explain requirement to apply to pension fund trustee boards in setting their mandates in order to fully disclose which factors they have taken into account when formulating their mandates, and why. The guide highlights three key points:
  1. a new view of value is needed and provide the evidence for it

  2. behavioural pressures on trustees must be recognised and challenged

  3. fiduciary duty, properly understood, reinforces rather than constrains this view of value. Over the last two years we have been working with trustees and many other parts of the investment chain to produce a guide which sets out these arguments and supports trustee boards in forming and implementing a long-term financial view of value. The guide, Tomorrow's Value Achieving long-term financial returns: A guide for pension fund trustees, will be formally launched at an event with pension fund trustees at PwC on the 29th of April 2014. At yesterday’s event The Rt. Hon the Lord Mayor of the City of London, Alderman Fiona Woolf CBE remarked:

  This Guide has a clear message; that trustees absolutely should look to the long term, as well as much shorter time horizons. That value is something that integrates a number of factors over the long term – and we must rise to the challenge of combining the mainstream and environmental, social and governance factors into a new and integrated mainstream view. Professor Mervyn E. King SC, Chairman, International Integrated Reporting Council commented:
When making investment choices, trustees need to be asking themselves several questions about the companies in question, such as, have they done an integrated report? Does the company have a supply chain code of conduct and is it being monitored? Factors, other than purely financial ones, have to be included in the trustee’s investment analysis. In short, trustees have to be aware that short-term capitalism is yesterday’s game. They have to aim for sustainable capitalism based on the broader approach of "capitals" in the integrated reporting framework from the IIRC, with a matching investment and realisation in the changed world in which we live. In the guide, Joanne Segars, Chief Executive, National Association of Pension Funds states:
Given the increasing range of challenges which require the focus of trustees, the National Association of Pension Funds supports efforts to put the stewardship agenda into a context which can be embraced by funds in a simple but effective fashion. We would encourage pension fund trustees to consider how they can make best use of The Tomorrow’s Value: achieving long-term financial returns and accompanying agenda to enable further consideration of this important agenda. Fiona Reynolds, Managing Director, Principles for Responsible Investment comments:
We are very pleased to welcome and to be associated with the Tomorrow’s Value guide for pension fund trustees. We believe the associated agenda will provide trustees with practical guidance on how to best deliver long-term financial value within their own pension schemes. We are confident that this work will ensure progress is made towards the overarching goals to which we all subscribe. We encourage pension fund trustees to engage with this work. They are the guardians of workers’ capital, a phrase which rightly highlights the nature of the assets under their stewardship.

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