Pension schemes and asset owners need to interrogate asset managers on their voting record on climate change if they are to meet stretching 2030 net zero targets.
Speaking in a panel discussion at Corporate Adviser’s Master Trust and GPP conference ShareAction’s director of financial sector standards Peter Uhlenbruch says this would be one of the most powerful ways for schemes to meet their own 2030 net zero targets and, more importantly, reduce real world emissions.
He called on schemes to demand evidence from assets managers on their voting record, and whether they voted against directors where progress on the transition to net zero had been too slow.
Uhlenbruch said that the UK was in a good position to advance this, having one of the strongest stewardship codes in the world. Escalation needs to be a key part of this he says, with asset managers pressing companies to continuously improve action on climate change. “There are tools and levels that already exist to help meet net zero targets. We need to see asset managers making more use of them.”
There was agreement on the panel that the pensions industry in the UK remained in a good position to meet 2030 targets. Buck principal and senior investment consultant Celene Lee says there was widespread “buy-in and support” for ESG principles and net zero targets from across the pensions industry. “Morally we are on track,” she says.
However others on the panel thought that there was also a need for more clearly defined shorter term actionable goals, to ensure 2030 goals did not slip.
Aegon UK climate & responsible investment strategy lead Pauline Vaskou pointed out that outside the pension arena not all companies have set net zero targets, and those that have don’t necessarily cover Scope 3 emissions.
She says that there is a contradiction that more companies are signing up to net zero goals, but the data shows real world emissions are still going up.
Allied to this were concerns about greenwashing, particularly in light of the recent FCA action against HSBC.
Lee praised the action taken by the FCA and other regulators to address this issue. As she pointed out in her role as a consultant she has found that funds with a ‘green’ label can be less climate-friendly that funds that do not have this marketing badge. She said she hoped action by the regulator would go some way to addressing this issue.
Unhlenbruch agreed this was a problem that extended beyond fund labelling. He pointed out that many companies have signed up to organisations or alliances with a view of helping the economy transition towards limiting global warming to just 1.5 degree.
He said it was important that these ‘umbrella’ organisations had a high entry bar as well as accountability to ensure member organisations continued to meet stated aims. “Otherwise there is the fear that firms will sign up and have a free ride off the work of others,” he said.
Those on the panel did not see an inherent conflict between trustees’ fiduciary duty to maximise returns for members and meet 2030 net zero targets.
Linklater partner John Sheppard says there may be “tensions” particularly when it came to balancing shorter term and longer term goals, but he said that these are issues that trustees should be used to dealing with, in relation to other investment issues not just relating to net zero.
Uhlenbruch said that in order to meet net zero targets the financial sector will have to look at financing private markets that are providing solutions and aiding the transition to a lower carbon economy. “The question will be what is a fair share to pay to finance this transition.
Vaskou adds: “When you look at the money and investment that is required in emerging markets it is clear this is not going to come solely from government and philanthropy.”
