Pensions minister: Trustees should fire investment managers who fail to act on climate change

Written by Louise Farrand

Minister “shocked” by AMNT report which found that over half of fund managers do not have climate change-related voting policy – and warns trustees to get ready to implement the recommendations of the Taskforce on Climate-related Financial Disclosures

Guy Opperman MP, the Minister for Pensions and Financial Inclusion opened the Association of Member Nominated Trustees’ Autumn Conference 2019 on the 31st October with a stinging attack on pension schemes and investment managers alike who are not making meaningful change on environmental, social and governance issues.

Opperman criticised the lack of action some investment managers have taken on issues like climate change. He backed the AMNT’s campaign to make them take more notice of pension funds’ stances on ESG issues. 

The AMNT has complained to the Financial Conduct Authority and Treasury Select Committee that it is impossible for schemes to develop robust ESG policies and take savers’ views into account, when fund managers are not always prepared to listen. 

Opperman said: “Our market is afflicted with some asset managers – they are certainly not the small ones – who are struggling to have an impact. I have in mind asset managers who tell you how many people are in their stewardship team, and the unspecified long term engagement they have carried out with firms – which on further examination has achieved no substantive change in policy from those firms for 20 years or more. 

“Some asset managers won’t support climate resolutions, or vote through pay awards for poor performance, and won’t vote out managers who show conflicts of interest or lack of independence in the boardroom. If you use these people – well, then you as trustees are far from limited in what you can do. Put simply, you can fire them. You have a great deal of power.”

It is in the power of trustees to change the world, he added. “You are responsible for your own destiny … While the government is doing our bit, it has to be asked: what are you doing? Only the pension schemes – and other institutional investors – can direct financial flows. You might say, what about asset managers? To which, I would say, remind me, who hired the asset manager? I am looking at all of you. It’s your choice.”

Opperman has written to the 40 largest defined benefit schemes and the largest 10 defined contribution schemes, which are responsible for around 50% of the assets in their respective sectors, to find out what they are doing around ESG. 

The majority of responses are now back. “To put it politely, some are better than others,” said Opperman. The minister and his team will be closely scrutinising their responses. Opperman will also be supporting the UK Sustainable Investment and Financial Association (UKSIF’s) review of the quality of schemes’ public disclosures. 

The Taskforce on Climate-related Financial Disclosures

Opperman supported the work done by Mark Carney and Michael Bloomberg in establishing the Taskforce on Climate-related Financial Disclosures and questioned why schemes should not meet its requirements before the 2022 deadline. 

The minister said: “I don’t see why schemes shouldn’t consider going earlier. Many of the items which make up the TCFD framework are things which schemes need to do already under two sets of regulations I laid last year.”

Opperman welcomed the work of an industry group of volunteers who are delivering guidance for pension schemes getting ready for TCFD. “I’m really eager to put this guidance on a statutory footing as soon as possible to empower trustees to challenge their investment managers and ultimately the firms in whom they invest.”

He added: “I can imagine smaller schemes gulping at what this might include. But let me ask this question back at you. Why shouldn’t you realistically expect a TCFD-aligned disclosure specific to the funds in which you are invested, from your asset manager? They chose the individual assets – wouldn’t they want to know how their stock selections would bear up in the face of concerted international action to limit temperature rises to 2 degrees? Wouldn’t you want to know too?”

Voting rights and engagement

Opperman was “shocked” to read the AMNT’s report earlier this year, which found that over half of the fund managers surveyed did not have a climate change-related voting policy or guideline in their overall voting policy. 

The minister said: “I welcome recent [FCA] changes … but I don’t think we can wait for managers with weak policies to be found out or get their act together. I think we need trustees to be able to set their own voting policies and guidelines now.”

Different trustee boards will want to do this to varying levels of detail, said Opperman. Some will make their views heard via the asset manager appointment process. But they should be able to set their voting policies and have them listened to. 

He called the Financial Reporting Council’s new Stewardship Code “a great leap forward. It now explicitly covers ESG, it’s written in a way that pension schemes can now meaningfully sign up to, and it creates an expectation in Principle 6 that investment managers will comply in aligning their stewardship and investment approaches with the trustees that hired them, or explain where they have not. 

“If we have a system where asset managers not only monopolise voting but also offer poor disclosures, it will have a stultifying effect on engagement by trustees. It’s very easy to argue that someone isn’t interested in something when we’ve spent the last few years repeatedly telling them it isn’t important and refusing to discuss it with them. I want to see change – urgent change – in this area, and I thank the AMNT for their tireless campaigning here.” 

The Pension Schemes Bill 

Opperman emphasised that the Pension Schemes Bill has cross-party support and that he has worked closely with the shadow pensions minister, Jack Dromey, to achieve this. Whatever the government looks like after December’s General Election, he is confident it will continue to progress. 

He said: “It is regrettable that the General Election has got in the way of this bill. But I do not believe any political party will have any problem with taking it forward in future. Legislation is a bit like one of those travellators at the airport – you get on, it moves very slowly, but you get there in the end. Whichever government is in power after December the 12th can and will bring forward this bill. Whilst there has been a pause, it does not mean that this bill will not continue. It will genuinely be transformational.”

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