Major pension schemes make the case for collective approach to investor engagement.
Pension funds and other institutional asset owners need to act together if they are to contribute meaningfully to efforts to minimise the impact of climate change, according to Adam Matthews, Director of Ethics and Engagement for the Church of England Pension Board.
“No fund itself is going to drive change at the scale that is required in the time we have,” said Matthews, speaking at the 2020 conference of the Pension and Lifetime Savings Association (PLSA).
“It is absolutely clear we need to collaborate. We will take an occasional position ourselves on particular issues, but ultimately the vast majority of the time we will seek to build collaboration,” he said in a discussion on stewardship with Diandra Soobiah, Head of Responsible Investment at NEST, and Joe Dabrowski, Head of DB, LGPS and Standards at the PLSA.
Matthews cited climate-focused investor group Climate Action 100+ as an example of best practice in stewardship, with reference to its influence on Shell Royal Dutch’s business strategy. The firm recently announced a major restructuring programme with the aim of transitioning to supplying low-carbon energy, pledging to achieve carbon neutrality by 2050.
“We’re working with that company in detail to put in place a transition plan that will enable them to move from an oil an gas business to a completely different business that is aligned with the goals of the Paris Agreement. That’s the sort of approach we seek to take in all our interventions,” he said.
The CofE Pension Board is responsible for £2.8 billion of assets, with 46.6% invested in global equities. The board’s ethical investment strategy is informed in part by its mission, with climate change considered both an ethical and financial risk.
It recently divested its holdings in ExxonMobil after the US oil firm failed to set targets for reducing its Scope 3 emissions, despite repeated calls for greater transparency and a plan to transition away from oil production.
NEST’s Soobiah emphasised the importance of collaboration with fund managers as well as fellow investors in order to achieve “influence and impact”. Asset owners should ensure their managers have well-documented voting policies that are broadly in line with their own priorities, she said.
“We don’t want to tell them how to vote. We just want to ensure they are voting in line with the long-term interests of our members and have strong stewardship practices.”
Soobiah added that schemes should realise they cannot fight every battle. NEST’s focus on climate change and issues related to human capital stemmed directly from engagement exercises with members. “We know we can’t do everything. We focus on the most impactful issues that will make a difference to our members’ long-term outcomes,” she said.
NEST manages the auto-enrolled defined contribution pensions of 9.3 million UK employees, totalling £13 billion in assets under management, functioning as a non-departmental public body answerable to the UK’s Department for Work and Pensions.