EUROPE - Pension funds should be able to decide for themselves whether the benefits of shareholder engagement outweigh the costs involved, the European Federation for Retirement Provision (EFRP) believes.
In its response to the European Commission's Green Paper on Corporate Governance in Financial Institutions and Remuneration Policies, the EFRP said while it supported the Commission's aim to encourage shareholder engagement, it opposed any form of compulsion.
The EFRP said the example set by the UK's Financial Reporting Council, which recently published The UK Stewardship Code, (Global Pensions: 02 July, 2010) could seen be followed by other countries. It would therefore make sense to look for a single EU code acceptable to all member states, it argued.
EFRP chairman Angel Martinez-Aldama said: "The Commission should consider developing an ‘EU Stewardship Code' containing a limited number of high-level principles on engagement, voting and disclosure. This would prevent a proliferation of codes around Europe and ease the administrative burden on institutional investors."
"Many pension funds incorporate ESG issues in the investment decision-making process, have an active voting policy in place and engage in companies with regard to corporate governance. I consider the Green Paper as a welcome support for pension funds' efforts to improve governance practices of companies."
EFRP also warned the potential achievements of active ownership policies should not be exaggerated. It claimed the direct influence of shareholders in areas like nomination/dismissal of individual board members, governance practices and remuneration policies was limited in many EU member states.
Secretary general Chris Verhaegen added: "Sometimes shareholders are blamed for not having done enough to prevent the financial crisis. However, in large parts of Europe company boards operate quite independently from shareholders in order to represent the interests of all stakeholders.
"If it is felt that shareholders have an important role in overseeing corporate governance and strategy, a logical consequence would be that shareholders' rights be enhanced. You cannot have it both ways."
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