Investment Strategy & Trustee Reputational Risk

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In case you are a trustee, have you ever ever had a type of letters or emails questioning your funding technique? I don’t imply questions on de-risking triggers, the safety of counterparties and even strategic asset allocation queries, that are the stuff of trustee conferences. The kind of enquiry I’m referring to is the persistent member or activist (who’re rising in numbers in our expertise) who is concentrated on the propriety of a scheme’s funding in both particular shares, industries (fossil fuels are extraordinarily in style for this kind of communication) and even international locations (a Supreme Court docket judgment final yr highlighted the sensitivity of the Native Authorities Pension Scheme (LGPS) to the sort of publicity).

Such communications usually finish with one thing between robust encouragement and a request to divest as quickly as potential from the offending funding(s). Accepting that trustees usually would not have entry to PR companies or company affairs departments, what ought to trustees do when confronted with such communications?

First, even when you don’t agree with the correspondent, take the method significantly and examine the details. Many trustees could discover themselves unwittingly uncovered to a reputational danger by investing in an organization or a sector which may convey them embarrassment. Some well-informed activists have even been recognized to offer a listing of particular person shares to LGPS funds (the place Freedom of Data Act requests could after all be made), however with the arrival of higher on-line disclosures being inspired within the non-public sector in quite a lot of areas, it could not be too stunning to search out that trustees don’t know what their underlying investments are and should be informed by an assiduous third social gathering. Being at an data drawback is just not place from which to defend your funding technique.

When speaking along with your funding managers, take the chance to examine that their coverage and method to the related space is aligned along with your assertion of funding rules and extra importantly to your personal funding beliefs as a trustee board. Is it time to rethink your method to environmental, social and governance points (and whether or not it’s truly yours or the one which was really helpful by your funding guide)?

Examine the contractual rights that you must obtain details about your funding holdings, as a way to head off any future reputational danger. Particularly in case you are invested in non-public markets, it’s possible you’ll not obtain such data till properly after investments have been made and you might be more likely to don’t have any rights, until you could have negotiated them expressly, to be excused from investments which may be a supply of embarrassment. The identical could be mentioned of a passive funding method.

Lastly, though aggrieved members and shareholder activists might not be an on a regular basis incidence, contemplate whether or not your danger register wants updating to incorporate reputational dangers (alongside a breach of your ESG coverage). Do you must put together a communications plan to take a seat alongside your ESG coverage breach response plan?


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Nationwide Regulation Overview, Quantity XI, Quantity 132

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