Pension schemes are placing more importance on stewardship when it comes to the selection of asset managers, an annual survey from the National Association of Pension Funds (NAPF) has found.

The 2014 NAPF Engagement Survey show 94% of funds that responded to the survey recognised their stewardship responsibilities and 80% said they now take stewardship activity into account when selecting their investment managers.

Will Pomroy, corporate governance policy lead at NAPF, said: "A decade on from our first Engagement Survey there is now clear recognition that environmental, social and governance risks can have a material impact on pension fund investments."

He added that management of these risks should be through ongoing engagement with companies and the exercising of voting rights.

The Engagement Survey is an annual report that looks specifically at pension funds' engagement with their investee companies.

This year's survey demonstrates a strong new development – the increasingly active approach of pension funds in factoring in stewardship activity.

The first survey in 2004 found that one third of schemes that responded factored in stewardship activity when selecting asset managers or consultants.

"From one third to 80% considering the stewardship approaches of asset managers in a decade is a real step change with significant implications," said Will Pomroy.

The survey also asked schemes how they screen asset managers during the selection process with respect to stewardship activity.

More than half of respondents (60%) said they actively questions prospective managers about their approach to stewardship.

An increase in the time spent reviewing reporting, along with more questions being asked more often is further evidence of pension funds' growing scrutiny of their managers' stewardship activities.

"This year's survey showed pension funds increasingly pressing for the highest standards of stewardship by their asset managers in the interests of their members," said Will Pomroy.

The survey took in responses from 50 pension funds among the NAPF's membership, with combined assets under management of GBP 419bn (EUR 530bn).

First published 27.11.2014

Lindsay.sharman@wilmington.co.uk