PLSA AC 2020: Pension schemes have ‘nothing to lose’ in collaborating to address climate change

Pension schemes have nothing to lose and everything to gain in working together to address climate change issues, Aon UK head of responsible investment, Tim Manuel has said.

Speaking at the PLSA Annual Conference 2020, Manuel stated that combining assets was one thing, but combining forces was the “critical tool” in tackling climate change.

“What is amazing about pension funds is we are not in competition with each other, there is nothing to lose by sharing the power of your voice with others and everything to gain,” he added.

Manuel noted that, despite increased policy and regulation, schemes’ commitments and actions “look anchored to our current behaviours” and are “very little” like the 1.5 degree pathway needed.

“I know the job of a trustee can be an extremely challenging one, so no part of this is meant as a criticism. It’s just there to paint a more complete picture of the situation we are in,” Manuel continued.

“Almost half of trustees told us they have a duty and an ability to help tackle climate change. The majority of trustees do not believe that they can make their ambitions on climate happen in practice, or if they do it will be to the financial detriment to their schemes.”

Aon research found that the most commonly cited reason for not pursuing a responsible investment approach was that it may compromise returns, with 33 per cent of respondents giving this as their reason.

This was followed by insufficient opportunities (29 per cent), conflict with fiduciary duty (14 per cent) and increased risk (8 per cent).

The least commonly cited reason was that members would not want it (4 per cent).

When asked the reasons for pursuing a responsible investment approach, ‘members would expect it’ was the least cited reason (3 per cent).

“The views of members came out bottom for both questions, so members and what those members might think is important barely featured as a priory of how to invest for a better future,” said Manuel.

“Some of the regulatory push for greater transparency and disclosure, the heightened awareness of climate issues, and high-profile industry campaigns, means keeping members out of the decision equations like this is unlikely to be feasible much longer.”

Duty to seek positive change was the submitted by 32 per cent of respondents as to why they should pursue responsible investments, while 17 per cent cited reducing risk and 16 per cent responded that it was to align with mission or belief, or regulatory requirement.

Only a quarter of respondents said that have a good awareness of their fund managers’ voting and engagement policies, or interact proactively with their fund managers on voting and engagement.

“What I see is ambition among trustees to tackle global issues like climate change, concerns and worries about making that ambition a reality and governance is often barrier that is holding us back,” said Manuel.

“Perhaps we are stuck in a bit of a bubble, when a more outward-looking and proactive connection is needed between the trustees and the members they serve and the trustees and the firms they invest through."

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