India's insurers will have to disclose how they vote in shareholder meetings as the regulator pushes them to improve governance standards at companies they invest in.
Insurance companies are custodians of investments on behalf of policyholders, Insurance Regulatory and Development Authority of India (IRDAI) said in its guidelines for a stewardship code. So governance at investee companies is important, the regulator said.
Starting April 1 this year, insurers will be required to explain if they fail to comply with the code. Insurance companies will have to formulate their policies in the next six months and display the code on their websites within 30 days of receiving board approval.
The code is similar to the guidelines followed by mutual funds and foreign portfolio investors. The Indian insurance industry is behind the curve, a report by advisory firm Institutional Investor Advisory Services said. Mutual funds manage less than two-thirds of the equity assets compared to insurers but have the loudest voice within the investee companies, the report said.
What's A Stewardship Code?
Hermes, an institutional investor, defined the stewardship code as a set of fiduciary guidelines for institutional investors who hold shares and voting rights in companies.
“Stewardship codes require investors to monitor and, where necessary, engage with companies on material matters, including environmental, social, governance, strategy, performance and risk issues and to vote their shares at company AGMs and EGMs,” according to Hermes.
Nine countries have adopted the stewardship code since 2009, starting with the U.K., the IiAS report said. “We expect other categories of investors – asset managers and pension funds – to follow in India,” IiAS Founder and Managing Director Amit Tandon said.
There needs to be one code for all investors, and they can indicate if a particular part of the code will not be applicable, he said. “But this announcement is an important first step in the development of a stewardship code for India,” Tandon said.
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