AMNTs response to the DWPs consultation on Climate and Investment Reporting warns of potential “unintended consequences” that may harm the drive for greater action on climate change if there is separation between Paris alignment reporting and engagement.
If pension schemes report and publish their Paris alignment metric without a very strong linkage to their engagement activity then it might lead to them ceasing engagement with and divesting from laggard companies in order to improve their ‘score’. With concerned investors disinvesting, this could lead to these companies’ being dominated by investors who care little about addressing climate change.
This would have the effect of enabling such companies to continue their damaging activities which would be the opposite of the intentions of those disinvesting. While disinvestment may be the appropriate decision in some circumstances it is not always the right solution and, for those invested in pooled funds, may not be possible at the individual company level.
Maggie Rodger, Co-chair of the AMNT gave an example of such activity:
“The real world is always more complicated than a single metric. For example, a few years ago BP divested itself of its remaining Alaskan operations which were sold to Hilcorp, an independent Houston based company. This no doubt improved the carbon rating of BP, and its investors, but made no real world climate change difference; indeed Hilcorp has a poor record of violations including spills and leaks and is beyond the reach of investor engagement.
“Unfortunately the climate change issues are not about having good or bad schemes and funds - but about almost all sectors of companies making continual changes. As well as protecting members of pension schemes through reducing risk, the government is looking to the pensions and investment industry to do much of the heavy lifting in shifting markets rather than create public policy.
“AMNTs position is that a good pension scheme will not protect its members’ future by being ultra-green in a wider world which has not responded to the climate issues. Investments are much more closely interlinked than that and the risks of climate change will ultimately affect virtually everything. Engagement is the necessary tool to make a difference”.
AMNT is asking the DWP and FCA to ensure that the portfolio alignment measuring and stewardship are interrelated to give the full picture and encourage continuing engagement.
AMNT reiterates that it welcomes the proposals on climate reporting and guidance encouraging trustees to take ownership of voting policies, but believes that it will only succeed if the fund management industry accepts trustees’ right to have their own stewardship policy and hold them to account, and to respond positively to trustees’ requests for information.
As Janice Turner, Co-Chair of the AMNT concluded:“This is not unreasonable: all of a pension scheme’s other professional advisers – investment consultants, actuaries, administrators, lawyers – are required to work on a scheme-specific basis. The DWP’s proposals should result in fund managers having to greatly expand their stewardship departments in order to be properly
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