The future of ESG within the pension industry is “genuinely in doubt” due to a political backlash in the US, according to former pensions minister and consultant Guy Opperman.
This stark warning came during his keynote speech at Corporate Adviser’s Master Trust Conference this morning.
He highlighted that progress made to date, particularly in the EU and UK, risks being rowed back, with pressures already apparent. “We can already see the EU backing away from certain directives,” he warned.
Opperman highlighted the influence of Trump advisers like Justin Danhof, who recently told an OECD conference that ESG investment was “like economic Marxism”. Opperman pointed out that this view has become more pervasive in the US, with schemes there being sued if they invest in ESG but then fail to outperform in the shorter term. US fund managers like BlackRock are now also using terms like “resilience planning” rather than “ESG”, he noted.
Given the influence of the US globally, there is a danger that this will influence decision-making on this side of the Atlantic, he said.
These observations came in a wide-ranging speech where Opperman, the longest-serving pensions minister, discussed the battery of reforms facing the industry today.
Despite the stark warnings on ESG, Opperman was broadly positive about changes occurring in the UK DC sector, and was supportive of the direction of travel by the Labour Government. He said their ‘pensions for growth’ strategy was one that was “coherent” and “thought out” prior to coming to power.
Looking at the challenges of the Budget the previous day he said that the restrictions on salary sacrifice were “the best of all the worst options” and pointed out that the industry “dodged a bullet when it came to significant restrictions on tax-free cash from pensions”. He added that it is people’s willingness to spend this money – on home improvements or house deposits for adult children that properly swung the decision to keep the status quote for now.
Opperman said discussed specific reforms, including Value for Money, CDC, new scale tests and private market mandates, that are within the Pension Schemes Bill, currently making its way through Parliament.
Opperman told delegates that legislation is often very different to the original proposals contained in a published bill. But he added that with the Pension Schemes Bill, he did not see significant changes occurring. “It has remained virtually unchanged while making its way through the Commons,” he said, pointing out that most of the changes had been instigated by the Government.
He added that he did not foresee major changes in the House of Lords, with one of that chamber’s most influential voices on pensions, Baroness Jeannie Drake, unlikely to push for significant amendments. Drake was one of the architects of auto-enrolment and is currently leading the latest Pensions Review, looking at retirement adequacy.
There were questions from the floor about the provision for mandation contained in the Bill — which many in the DC pensions world are not comfortable with. Opperman commented on the “breadth” of the Bill and said he would have liked more “checks and nuances” in its wording.
He said that while he was not against the principle of “nudging” or requiring schemes to invest 5 to 10 per cent of assets into UK private markets, the wording raised the possibility that future governments who, in his words, “may not be sensible centre-left or centre-right parties”, may extend this. The exact wording of the Bill says this could include certain private markets, but does not exclude any specific assets.
On a more positive note, Opperman was very confident that the Value for Money framework would drive up performance by highlighting laggards. He pointed out that as pensions minister, one of the failings of current legislation was that he did not have the power to force schemes to close that were delivering returns that barely kept pace with inflation.
He noted that CDC was set to have a major impact on the market. “This focus on decumulation and retirement products will dramatically change the status quo in the master trust market.”
