Financial Services and Markets Bill

Debate between Lord Harlech and Baroness Sheehan

Committee stage
Monday 30th January 2023 Grand Committee

[Lord Harlech (Con)]

My Lords, I thank the noble Baronesses, Lady Sheehan, Lady Wheatcroft, Lady Hayman, Lady Bennett of Manor Castle and Lady Kramer, for raising voter reporting.

The Government recognise that the ability of investors to exercise their voting rights is an important issue, which is why they are taking steps to address barriers in this area. The Financial Reporting Council’s world-leading UK Stewardship Code 2020 already requires detailed and annually assessed reporting from its voluntary signatories on voting disclosure, and the recent stewardship guidance for pension scheme trustees from the Department for Work and Pensions, which included substantial guidance on the exercise of voting rights, came into effect in October 2022.

However, the Government recognise that there is still more work to do. The DWP’s guidance includes sustainability-related issues, and its stewardship guidance focuses on areas where existing policies and reporting appear to be weakest: stewardship and, to a lesser extent, consideration of financially material ESG factors and non-financial factors. Stewardship encompasses a range of activities, and this guidance focuses specifically on voting and engagement; it is about creating long-term, sustainable value for savers and includes recognition of environmental and social governance factors, which is encompassed in the DWP’s guidance.

Furthermore, the DWP has already made a public commitment to review voting disclosure requirements in the response to the consultation on Climate and Investment Reporting: Setting Expectations and Empowering Savers. This review will be conducted jointly with other government departments, including the Treasury, and regulators. This will ensure consistency across the investment chain. The review will begin in late 2023, which will give the Pensions Regulator time to gather evidence on how the DWP’s existing guidance has influenced standards of voting disclosure.

[Baroness Sheehan (LD)]

Why is this review starting in late 2023 necessary when substantial reviews have already been carried out and there are various ongoing task forces? I am really at a loss to understand why this is necessary.

[Lord Harlech (Con)]

Is the noble Baroness asking why the review is necessary or why it is scheduled for that time?

[Baroness Sheehan (LD)]

It would be useful to have answers to both: why is a review necessary and why is it scheduled so late?

[Lord Harlech (Con)]

The review is necessary because it is important to take into account multiple government departments, including the Treasury, and non-governmental bodies such as the regulators. I believe it is scheduled for that time to facilitate the gathering of evidence and set out the scope of the review.

[Lord Harlech (Con)]

If I could go on, perhaps my further remarks will address the noble Baroness’s question; if not, I will endeavour to write to her, if that is all right.

In November 2022, the FCA convened an independently chaired vote reporting group following the recommendations made by the Taskforce on Pension Scheme Voting Implementation. The aim of this is to develop a more comprehensive and standardised vote disclosure framework for asset managers, ensuring a fair, proportionate and practicable approach. The group’s draft proposals are expected to be published in April 2023 for public consultation. Moreover, local government pension scheme funds are already required to publish an investment strategy statement, including their policy on voting rights and ESG matters, with guidance on annual reports also encouraging transparency on how voting rights are exercised.

The FCA’s Conduct of Business Sourcebook—COBS—Shareholder Rights Directive rules already require all investment firms to develop and disclose an engagement and voting policy. This includes how the engagement is integrated into the investment strategy; how environmental, social and governance issues are monitored; and how conflicts of interests are managed. This policy must be reported on annually online.

The Government believe that it would be premature and unnecessary to amend voting disclosure legislation at the current time, given the initiatives that are already under way. I therefore ask the noble Baroness, Lady Sheehan, to withdraw her amendment.

[Baroness Sheehan (LD)]

I thank the Minister for his response. I also thank the noble Lords who spoke in support of my amendment.

I found the Minister’s response unsatisfactory. It did not address any of the issues that have been raised. We know that the voting reporting group is doing its work at the moment. The issue that I wanted the Minister to address is that participation is going to be voluntary; over the past 17 years, that has not produced any further transparency of the kind that we are looking for in this amendment.

Before he sits down, I want to ask the Minister a question about the rules made under the Shareholder Rights Directive. If the rule Bill becomes an Act, will there be a void there? Will there be nothing in its place? I assume that that will be the case.

[Lord Harlech (Con)]

I will have to write to the noble Baroness.

[Baroness Sheehan (LD)]

Undoubtedly, there are a great deal of unanswered questions but, for now, I beg leave to withdraw the amendment.