Pension fund investors must hold the directors of companies in which they invest individually accountable for the management of climate change risks, new industry guidance has said.

The Pension and Lifetime Savings Association’s (PLSA) annual Stewardship Guide and Voting Guidelines have called on investors to consider voting against the re-election of the responsible director or the re-election of the chair if businesses aren’t assessing, or accounting for, the impact of climate change on their strategy and business model.

This could include businesses being slow to move towards disclosure consistent with Taskforce for Climate Related Financial Disclosure (TCFD), Carbon Disclosure Project (CDP), Sustainability Accounting Standards Board (SASB), or another industry framework.

The PLSA also highlighted failure to demonstrate effective board ownership, carbon intensive operations, and not responding appropriately to investor concerns or a climate change related resolution, as potential reasons to take action.

The “toughened-up” section on climate change and sustainability builds upon existing ESG legislation that trustees already have to comply with, stating though that investors have a “fiduciary duty to go beyond mere compliance”.

The updated guidance has also urged investors to consider executive pension contributions, with the PLSA recommending these be in line with the percentages applied to the overall workforce.

The association recently published it's full AGM review, which revealed that whilst executive remuneration had remained a key concern for pension scheme shareholders, an increased focus on ESG related matters was likely over the next year.

PLSA policy lead investment and stewardship, Caroline Escott, said: “Pension schemes hold key stakes in FTSE 350 companies and it’s right that they use their influence as owners to encourage companies to behave responsibly.

"Issues like climate change and executive pay are important for investors as they can significantly influence corporate success and hence the value of individuals’ savings.

“Pension funds are ideally placed to encourage companies to behave in a way that ensures sustainable business success.

"We would also urge scheme investors to use the 2020 AGM season to hold directors individually accountable on issues of continued concern – doing so can be a powerful tool to effect change.

“For instance," she explained, "in cases where schemes feel that the agreed executive pay packages are not aligned to long-term performance, we recommend that pension fund investors vote against the re-election of remuneration committee chairs responsible for pay practices alongside voting against the remuneration policy or report.”

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