Pension funds ‘skirting climate responsibilities’

Responsible investment campaign group ShareAction has claimed that many big UK pension schemes are skirting their responsibilities on climate change despite new regulations.

ShareAction said  the majority of  the large pension funds — called master trusts — are delegating responsibility for voting their shares and climate engagement activity to their asset managers.

It said that “without  direction  from asset owners, asset managers are free to vote without a mandate.”

ShareAction said it analysed 16 of the largest UK pension schemes, managing £34 billion for 16 million people, on their approach to climate change.

ShareAction said its research reveals that 14 of the 16 — all apart from Nest and TPT Retirement Solutions — are “not directly engaging” with large global companies on their role in the climate crisis.

The pension schemes reviewed were: Fidelity Master Trust; Legal & General WorkSaveMaster Trust; Aegon Master Trust; Scottish Widows Master Trust; Standard Life Defined Contribution Master Trust; Aviva Master Trust; LifeSight (Willis Towers Watson); Mercer Master Trust; Aon MasterTrust; Atlas Master Trust (Capita Employee Benefits); Nest; The People’s Pension (B&CE); Smart Pension; SEI Master Trust; NOW: Pensions; and TPT Retirement Solutions.

“Pension funds were required from 1 October 2019 to publish policies on how they specifically incorporate climate change and other environmental, social, and governance issues in their investments,” said ShareAction.

“But ShareAction finds the vast majority are falling short.

“Looking at these policies, ShareAction puts only Nest, the government-backed pension scheme with 8.5 million members,  in the leading category.

“Nest actively engages its asset managers on its voting policy, and is transparent about talks with companies and the outcomes.

“Furthermore, it is reducing its exposure to fossil fuel stocks and increasing investment in companies which will benefit from the low-carbon transition.

“TPT, scoring in the category below, also provides evidence of direct climate engagement through the Climate Action 100+ initiative.”

ShareAction added: “By contrast,  the majority of  the large pension funds (called master trusts) are delegating responsibility for voting their shares and climate engagement activity to their asset managers.  

“This is concerning because regulations require schemes to have their own policy on so-called stewardship activities, including voting  and engagement. Without  direction  from asset owners, asset managers are free to vote without a mandate.”

Lauren Peacock, campaigns manager at ShareAction and author of the report, says: “Millions of savers are putting their life savings into the hands of pension funds who are playing a dangerous game with it.

“By passing the buck on climate change, they give little comfort that the world and their savings will be protected come retirement.

“Younger savers are beginning to connect the dots between their personal finances and their impact on the planet. 

“We hope these master trusts sit up and listen to these findings before it’s too late.”

Rachel Neill, head of sustainable investment at Smart Pension, said: “ShareAction’s report demonstrates the progress that’s been made in the master trust space on ESG and stewardship and is also clear on where more can be done. 

“Millions of savers have their retirement outcomes in the hands of trustees and as these assets continue to grow, responsible investment, stewardship and the impact that investment decisions are having, will continue to be central to trustees’ fiduciary duty. 

“Being able to show how a scheme’s investment activity reflects things like the climate emergency helps to give members reassurance on the decisions that are being made on their behalf. 

“As the report notes, bolder, smarter thinking is required to address some of the world’s toughest challenges.

“Continuously learning, evolving and exploring new ways of having a positive impact on these challenges is going to help to create a world we all want to retire in.”