The Minister for Pensions, Guy Opperman, has suggested there is still “widespread misunderstanding” among trustees and scheme managers around the financial affects of climate change on their clients’ portfolios.
Responding to a letter from the Environmental Audit Committee (EAC) as part of its Green Finance investigation, sent on 15 February 2018 but published by the EAC today (05 March 18), Opperman said that while there are trustees that understand the issues, “good practice appears to be far from universal”.
The government’s response was shared on the same day that the Chair of the Environmental Committee, Mary Creagh, published questions she sent to the UK’s 25 biggest pension funds, asking about their investment strategy around environmental risk.
In its response, the DWP highlighted research done by Sackers, in which it said: “[Trustees]… consider Environmental, Social and Governance (ESG) factors and external governance reviews to be low priorities. Some participants were not sure what ESG meant… Some see ESG as a distraction or potentially detrimental to achieving the scheme’s goals.”
Furthermore, the government endorsed the Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosures (TCFD) findings, published in June 2017, in which it suggested four recommendations around governance, strategy, risk management and metrics and targets for companies to give investors.
The DWP said it was planning to launch a consultation on the issue in May or June of 2018, which would require trustees to evaluate how they take into account financially material risks, specifically around climate change by publishing a statement of investment principles.
ShareAction senior policy officer, Rachel Haworth, said: “We are … pleased to see that the DWP has publicly confirmed that there appears to be a widespread misunderstanding of fiduciary duty among pension scheme trustees.
“ShareAction has been lobbying for clarification in this area since 2012. We applaud the government’s intention to introduce robust regulations that are as effective as possible in delivering the necessary changes.”
In the letter to pension schemes, Creagh asks if they have considered the risks at board level, what actions they are planning to take in response to the risks and whether they are going to adopt the TCFD recommendations.
The schemes have been given until the 28 March to respond.