The next pension misselling scandal will be centred around pension schemes’ lack of action around climate change issues, and any schemes not targeting the Paris accord targeting limiting climate increase to 1.5 degrees will be in the firing line.
Tony Burdon, the chief executive of Make My Money Matter — a high profile campaign group, founded by Red Nose Day founder Richard Curtis — gave this stark warning at the Corporate Adviser Summit last Thursday.
Burdon told consultants and providers that this issue was “a mis-selling scandal waiting to happen”.
“DWP has said it is consulting on whether schemes should disclose their warming projections up to 2050. At the moment we know that will all look like 4 degrees. Most people saving into a pension don’t know they are saving into a 4 degree pension that is actually causing climate change. And at the same time the pension companies have pictures of trees and talk about ESG and tilts as if it’s all great. But they’re all 4 degree pension funds. And for me that’s a misselling scandal waiting to happen.
“The reality is that the investments are not aligned with the Paris climate objectives of limiting climate change to 1.5 degrees. The schemes invest in funds that causing climate change and will contribute to a 4 degree increase in temperature.
“If you are a corporate, how do you choose? We have corporations now aligning their whole business with net zero, from BT, Unilever, so when you are advising those clients, at the moment the only one I can says is a good pension is Nest, because Nest is aligned with net zero. Not only by 2050, but they are trying to halve emissions by 2030. So for corporate clients aligned to net zero, surely your pension should align with your values.
Burdon was speaking on the day that Aviva joined Nest in becoming the second pension provider committing to the Paris target, setting a net-zero target for the £32bn held within its main default funds. As part of Aviva’s strategy to achieve this, it plans to invest over £5 billion into low carbon equities and climate transition strategies across its default funds over the next 18 months and will look to increase this level of investment after that.
Other attending the debate agreed there was scope for DC pension schemes to do more. Chronos Sustainability chief executive Rory Sullivan pointed out that DC was at a tipping point.
He said changes that happened in the DB sector on these issues 10 or 15 years ago were now a matter of “urgent concern” for the DC sector.
He added though that this will be an area of competition in the market. “There is a great deal of individual and corporate concern about these issues.” If this is not tackled properly then clients will go elsewhere, he said.
Speaking at the event, UN PRI senior specialist on climate and energy transition Edward Baker said climate change presented significant challenges for the UK pension industry.
He said this issue of transitioning to a lower carbon world created enormous challenges for pension schemes at present. Covid has hastened this transition he said.
He added that even if there is a rapid reduction in carbon emissions, it may not be enough to hit the 1.5 degree target, and more stringent regulatory action may be needed.
Baker added that there were now a range of tools that consultants, trustees and schemes can use to compare funds and understand their carbon footprint. The EU taxonomy provides a common framework for this he said, producing a performance standard for green activities.
He said there will be more pressure on UN PRI signatories to disclose publicly the information required by the Task Force on Climate-related Financial Disclosures (TCFD). The DWP is consulting on whether to require schemes, starting with the largest ones, to comply with the TCFD, which could include revealing the carbon footprint of the investments within a scheme.
Buck principal and senior investment consultant Celene Lee says that greater disclosure and more robust data will help drive up standards across the industry.
She says that the industry is more complex and has moved away from a simple binary of inclusion and investment or exclusion and disinvestment. She says better data on carbon emissions can help drive investment decisions, and improve corporate behaviour with a view to attracting investment.
“There are a range of issues that people want better data, from carbon emissions to pollution and use of plastic. We are on a journey to getting better data that encapsulates lots of these factors.”
On the issue of engagement or divestment of stocks, Sullivan agreed that there needed to be a blend of both. “These binary debates between divest or engage are not where leading practice is. The answer is it’s a mix. We are talking about sophisticated strategies, and sophisticated companies coming in don’t want Fred Flintstone solutions.”
In a press statement applauding Aviva’s commitment to the Paris target, Richard Curtis, founder of Make My Money Matter said: “We welcome Aviva’s leadership with the important commitments made today. With two of the UK’s leading pension funds now committed to net zero, that’s 13m pension pots tackling the climate emergency. However, there’s much more to do. That’s why Make My Money Matter is calling for all pension funds to match Aviva’s leadership and commit to net zero, with a halving of emissions by 2030.”