UPDATE 2-Standard Life fund arm raises governance concerns at VW, Shell

(Updates with company reaction, Standard Life stakes)

LONDON, March 2 (Reuters) - The investment arm of Britishinsurer Standard life said on Wednesday it would step upits engagement with management at Volkswagen andRoyal Dutch Shell over certain concerns it hasregarding corporate governance.

In its annual governance and stewardship report, StandardLife Investments said it was worried about a lack ofindependence on Volkswagen's supervisory board and boardcommittees following the appointment of former chief financialofficer Hans Dieter Poetsch as chairman of the supervisoryboard, in the wake of the carmaker's emissions scandal.

The fund manager also said it had concerns at Shell aboutthe auditing of its accounts following the appointment of EY,which also served as auditor of BG, the company taken over byShell last month.

Standard Life Investments flagged the two companies ascandidates for "escalation", indicating the firm would press thecompanies on their concerns.

Standard Life has a 1.4 percent stake in Shell. It said itno longer owns shares in Volkswagen but holds Volkswagen debt.

A spokesman for Volkswagen referred to the company'scorporate governance report, which said transparent andresponsible corporate governance was the "highest priority" forthe firm and one of the key conditions for strengthening trustof customers and investors and increasing the company's value.

Shell declined to comment.

In its report Standard Life Investments also said it hadbeen influential in achieving governance changes at petroleumfirm SOCO International, property manager Grainger and oil producer EOG Resources.

It said budget airline Ryanair, advertising companyWPP, oilfield services company Petrofac, utilityservices retailer Telecom Plus, miner Anglo American, tourism group Thomas Cook, heart device makerBoston Scientific and advertising agency Dentsu were all on track to meet objectives concerning governanceissues. (Reporting by Carolyn Cohn; Editing by Sinead Cruise and SusanThomas)