A leading European pensions body has called for the development of an EU-wide Stewardship Code, which would encourage shareholder engagement and adherence to responsible investment principles on a ‘comply or explain’ basis; while also avoiding a proliferation of codes springing up across Europe.

The European Federation for Retirement Provision (EFRP), in its response to the European Commission’s Green Paper on Corporate Governance in Financial Institutions and Remuneration Policies*, emphasised that a code of this nature would be preferable over any form of compulsion as, stated the Federation, pension funds should be able to decide by themselves whether the benefits of engagement outweigh the costs of implementing such policies.

The EFRP said: “It is in our view a perfectly legitimate option for – especially smaller – pension funds to decide that the interests of the plan members are best served by taking a passive stance”.

The EFRP also highlighted how far pension funds have already come in recognising the importance of responsible investment and active ownership, with pension funds already spending substantial time and resources in improving corporate governance practices in companies as a sound governance structure will probably result in superior returns.

EFRP Chairman, Mr. Angel MARTINEZ-ALDAMA commented: “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.”

The full EFRP response is available at www.efrp.eu

*The Green Paper was issued by the European Commission to examine corporate governance rules and practice within financial institutions in light of the financial crisis

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