PLSA AC 2020: Pension industry experts call for collaboration in climate change fight

Pension industry experts have emphasised the importance of collaboration and engagement in pushing for change in relation to climate change and environmental, social and governance (ESG) issues.

Speaking at the PLSA Annual Conference 2020, Church of England Pension Board director of ethics and engagement, Adam Matthews, highlighted partnerships such as Climate Action 100 as “absolutely critical” to making the changes needed in the time available.

He stated: “Obviously collaboration is key, and I think the more funds that are enrolling behind the global collective endeavours to drive change, like Climate Action 100, which is now 500 investors and nearly $50 trillion. That is our shot at driving change as investors as stewards of these companies.

“The more funds that lend their weight, lend their assets under management, and lend their public support to that endeavour, give us a greater chance for driving the change that needs to happen in line with the science and economics of climate change .”

This was echoed by Nest head of responsible investment, Diandra Soobiah, who stated that collaboration with asset managers has already begun to create an impact, predicting that, with the help of the asset manager industry, there will be positive change.

Soobiah highlighted the importance of ensuring fund managers have their own “well documented voting policies”, emphasising that whilst it is not the schemes place to tell them how to vote, they do want to make sure that the are voting in the long-term interests of clients

She stated: "Collaborating with other investors and working with our fund managers has been absolutely instrumental in our approach, helping us to create that influence and impact across the market.

“It's important that fund managers have their own documented views on stewardship but they should engage with their clients and listen to their views too.

“They cannot develop stewardship policies without the long-term interest of their clients at the heart of them.

"Engagement must be ongoing and they should make the effort to hear the views of even their smallest clients and they should be proactive about it."

This was echoed by Matthews, who emphasised the importance of finding common ground in response to a query as to how fund managers can reconcile the views of beneficiaries.

He stated: "Of course all asset owners will have different views and clearly, when serving many clients, a manager is going to need to find ways to be as responsive as possible, but equally attempt to find the common ground that enables them to deliver at scale.

"I would argue that on issues like climate change that there are some quite central requirements to be managed that are common to all.

"Those risks are also very helpfully now quite explicit in initiatives like Climate Action 100 which stipulate the kind of expectations of companies and the issues you as a manger should be engaging on/voting on."

However, Matthews warned that the industry should remain "on its guard”, noting that whilst this is a moment of “huge economic change” that could potentially speed up the transition to net zero, it could equally risk delays.

He explained that whilst the pandemic has bough “immediate and huge challenges” to company operations, investors must still maintain a dialogue, stressing that other parts of the economy have continued to lobby against climate-related changes.

"If anything it's been ramped up," he explained, "so there's an opportunity to see subsidy going to parts of the economy that actually need to transition, and therefore it will delay that transition."

Indeed, Matthews noted that there a "multitude of ways" for schemes to engage on ESG issues, for instance, encouraging schemes to ask governments to ensure that there is the right regulatory environment in place.

He also underlined the potential role of refinancing, stating that there is a "huge amount" of refinancing upcoming in the next two years, which could represent an opportunity to outline conditions for those companies transitioning.

Furthermore, he also highlighted that the state has become a “very significant actor” following Covid-19 support initiatives, meaning that there is a “very different lever in our policy dialogue” of using the position as bond holders of governments.

He concluded: “Through collaboration, consolidation and making systemic interventions and engagement, whether large or small, all putting our collective weight behind those pushes is how we can drive that change in the interest of our beneficiaries and the world that they’re gonna retire into.”

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