The government’s changes in net-zero goals are unlikely to significantly influence trustee approaches, according to the Independent Governance Group (IGG).
Rishi Sunak revised earlier climate commitments, delaying the ban on new petrol and diesel cars and extending the transition period for households to switch from gas boilers to heat pumps.
The government’s previous stance aimed to end the sale of new petrol and diesel vehicles by 2030, but this has now been extended to 2035, aligning with Europe and certain U.S. states like California.
IGG says trustees are less adaptable than the government when it comes to climate change regulations, but are obligated to modify their investing approaches in response to the financial effects of climate change.
This move from the government could impact efforts to press investment managers for necessary data and insights. The government wants more institutional investment in UK enterprises, therefore taking a milder stance on climate change could discourage institutional investors who are interested in the issue.
Independent Governance Group (IGG) head of investment and trustee director Pavan Bhardwaj says: “It might sound strange but ultimately trustees don’t have the same leeway as the Government to pivot their stance on climate change. In the grand scheme of things, the scaling back of the Government’s net zero ambitions are unlikely to make a material difference for most trustees.
“There is now widespread acceptance among trustees that climate change leads to financially material consequences, and therefore trustees are obliged to adapt their investment strategies accordingly. The largest pension schemes have already set TCFD targets, so from the perspective of trustees, what happens in Westminster is likely to stay in Westminster and is unlikely to alter their approach.
“Of course, there is no escaping that the optics of this announcement are unhelpful when it comes to setting the tone for more ambitious net zero targets in future. For example, it may be more difficult to exert leverage against investment managers who are failing to provide the data and insight that would otherwise be expected of them.
“A softer stance on climate change will also make the UK a less attractive prospect for institutional investors with climate objectives, so it seems like a counterproductive position to take at a time when the Department for Work and Pensions is looking at ways to encourage institutional investment in UK businesses.”
