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All pension funds registered under the National Pension System architecture must follow the Common Stewardship Code to protect subscriber wealth and improve corporate governance in investee companies. The code sets principles for formulating stewardship policies, managing conflicts of interest, monitoring investee companies, intervening when necessary, executing voting policies, and reporting periodically on stewardship activities. The voting policy dated 20 April 2017 remains in effect, and all other principles of the code take effect immediately from the date of issuance.
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पेन्शन निधि विनियामक और विकास प्राधिकरण बी-14/ए, छत्रपति शिवाजी भवन, कुतुब संस्थागत क्षेत्र, कटवारिया सरैय, नई दिल्ली-110016. दूरभाष : 011-26517501, 26517503, 26133730 फैक्स : 011-26517507 वेबसाइट : www.pfrda.org.in
PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY B-14/A, Chhatrapati Shivaji Bhawan, Qutab Institutional Area, Katwaria Sarai, New Delhi-110016. Ph : 011-26517501, 26517503, 26133730 Fax : 011-26517507 Website : www.pfrda.org.in
CIRCULAR
PFRDA/2018/01/PF/01
Date: 4th May, 2018
Subject: Common Stewardship Code
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(Venkateswarlu Peri) Chief General Manager
To Pension Funds registered with PFRDA
PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY QUTAB INSTITUTIONAL AREA, NEW DELHI
Annex
Common Stewardship Code
Principle 1 Institutional Investors should formulate a comprehensive policy on the discharge of their stewardship responsibilities, publicly disclose it, review and update it periodically.
Guidance Stewardship responsibilities include monitoring and actively engaging with investee companies on various matters including performance (operational, financial, etc.), strategy, corporate governance (including Board structure, remuneration, etc.), material environmental, social, and governance (ESG) opportunities or risks, capital structure, etc. Such engagement may be through detailed discussions with management, interaction with investee company Boards, voting in Board or shareholders meetings, etc.
Every institutional investor should formulate a comprehensive policy on how it intends to fulfill the aforesaid stewardship responsibilities and disclose it publicly. In case any of the activities are outsourced, the policy should provide for the mechanism to ensure that in such cases, stewardship responsibilities are exercised properly and diligently.
The policy should be reviewed and updated periodically and the updated policy should be publicly disclosed on the entity's website. Training policy for personnel involved on implementation of the principles is crucial and may form a part of the policy.
Principle 2 Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
Guidance As a part of the aforesaid comprehensive policy, institutional investors should formulate a detailed policy for identifying and managing conflicts of interest. The policy shall be intended to ensure that the interest of the client/beneficiary is placed before the interest of the entity. The policy should also address how matters are handled when the interests of clients or beneficiaries diverge from each other.
The conflict of interest policy formulated may, among other aspects, address the following:
Principle 3 Institutional investors should monitor their investee companies.
Guidance As a part of the aforesaid comprehensive policy, institutional investors should have a policy on continuous monitoring of their investee companies in respect of all aspects they consider important which may include performance of the companies, corporate governance, strategy, risks, etc.
The investors should identify the levels of monitoring for different investee companies, areas for monitoring, mechanism for monitoring, etc. The investors may also specifically identify situations where they do not wish to be actively involved with the investee companies e.g. in case of small investments.
The investors should also keep in mind regulations on insider trading while seeking information from the investee companies for the purpose of monitoring.
Accordingly, the institutional investors may formulate a policy on monitoring specifying, inter-alia, the following:
Principle 4 Institutional investors should have a clear policy on intervention in their investee companies. Institutional investors should also have a clear policy for collaboration with other institutional investors, where required, to preserve the interests of the ultimate investors, which should be disclosed.
Guidance Institutional investors should have a clear policy identifying the circumstances for active intervention in the investee companies and the manner of such intervention. The policy should also involve regular assessment of the outcomes of such intervention. Intervention should be considered even when passive investment policy is followed or if the volume of investment is low, if the circumstances so demand.
Circumstances for intervention may, inter alia, include poor financial performance of the company, corporate governance related practices, remuneration, strategy, ESG risks, leadership issues, litigations, etc.
