Most pension schemes recommended by consultants and advisers are ‘4 degree warming’ schemes that do not reflect the corporate values of their sponsors or the beliefs of their members. Such is the stark message from Tony Burdon, the CEO of Make My Money Matter, the pressure group set up by film director – Love Actually, Four Weddings – and Red Nose Day founder Richard Curtis.
Burdon firmly believes that the majority of the workplace pension schemes in place today, which do not target the 1.5 degree global warming scenario envisioned by the Paris climate agreement, will come back to haunt the reputations of the companies that have put them in place.
Speaking at the Corporate Adviser Summit earlier this month, Burdon said: “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 are 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, such as BT and 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.”
Interviewing Burdon after the Corporate Adviser Summit, it becomes apparent that Make My Money Matter is about more than just climate change. Impact investing, biodiversity, social issues such as pay and conditions, housing and fast fashion are all on the agenda – all to be tackled through the prism of the responsible pension investor. While sceptics might think pension schemes accounting for their deforestation impact may be far-fetched, the acceleration of climate-related changes to default funds has been rapid.
Most of that change has been the culmination of hard work by many people across many organisations for many, many years. But in the four months since Make My Money Matter was founded the concept of the connection between DC pensions and their impact on the world does appear to have gained a higher profile, and coincidentally or not, there have been some big milestones passed. Since it was founded in July both Nest and Aviva have committed to the Paris climate accord target of a 1.5 per cent rise in global temperature and net- zero target, bringing 11 million savers’ pots on board for a net-zero future – and they’re joined by South Yorkshire Pension Fund and the massive £54bn BT scheme.
“Our goals have been helped by a number of high-profile endorsements following the launch with Richard Curtis and Mark Carney,” he says.
A raft of A-list celebrities including Gary Lineker, Graham Norton, Westworld star Thandie Newton, and Mariella Frostrup have backed the campaign to date, with Martin Freeman voicing promotional videos for the organisation.
“We also have over 4,000 members of the public who have signed up to our manifesto – we are encouraging scheme members to contact their employers and pension providers to ask them what they are doing about issues that matter to them,” he says.
Other campaigns will look at fast fashion, food and tax evasion and the presence of companies operating in these areas within pension schemes.
Make My Money Matter will also be looking to bring pensions onto the agenda of the UK’s presidency of the G7 Summit in 2021.
“There are £40tr of pension assets worldwide – if we can get these aligned to positive outcomes this would be a massive step.”
A key question in the field of investing and climate change is whether engagement or divestment is the way forward. Burdon believes both have a role.
“If you listen to BP CEO Bernard Looney speaking on the Outrage & Optimism podcast you can hear him explain how he will be transferring the company to a net- zero business. He is committed to the process and he explains how he’s going to get good returns. It is an organisation that manages complex projects and they have similar skill sets that can be used between oilrigs and windfarms. Jobs will be protected and capital value will be retained. This is as a result of heavy engagement,” says Burdon. “Some other oil companies will also make the shift, while others will green wash. Others will not bother at all. But the threat of divestment is also a very effective threat.”
So what does a climate tilt achieve?
“A climate tilt is a half-way house. It’s old school. It is not going to get you to net zero. Nest and Aviva’s fund managers are on notice that they are going towards net zero. There will be a big shake up for asset managers as a result of this.”
It is clear Burdon sees pension schemes’ job of addressing climate change as business as usual – he sees the next frontier for pension funds as being positive impact investments. “We are going to see growing interest in positive impact investments. These are companies that produce a good margin but they also contribute to solving problems facing society. Things like affordable housing, care homes and renewable energy.”
A challenge that has always been posed to impact investments is the lack of capacity, as well as higher costs, which are a challenge for charge-capped workplace pensions.
“BNP Paribas are a partner of ours. They have done work on their staff pension scheme which has been aligned so that it is 90 per cent ESG and 10 per cent investments in positive impact companies. This reflects what the staff working for the company want, and they are happy with what they have. We are going to see greater acceptance of this area going forwards – Blackrock has an impact fund and we can expect more asset managers to start offering funds in this area.”
Progress on climate change is being achieved in part because of the simplicity of the messaging around universally- understood concepts – ‘1.5 degrees’, ‘the Paris accord’ and ‘net-zero carbon by 2050’ are fast becoming household words. But in the impact space, concepts and understanding are considerably more nebulous.
Burdon says we can expect acceleration in impact investing over the next 24 months, thanks to detailed work being done to address a lack of uniformity of understanding in the sector by the Impact Management Project, the Sustainable Accounting Management Board (SASB), the Global Reporting Initiative (GRI), the UN Principles of Responsible Investment, the World Banking Alliance, the Organisation for Economic Co-operation and Development and the International Financial Reporting Standards Foundation.
“These organisations are all looking at different disclosure standards but are working together to develop global accounting standards for impact investments. The standard accounting system that we all know today was only developed 70 years ago. When we get to a point in one or two years’ time when we have a universal approach, investors will be able to look at companies and select the ones that reflect their values.
“Ronnie Cohen, author of Impact, and George Serapheim of Harvard Business School are currently doing work on an impact profit and loss account approach. For example, Pepsi uses significantly less water than Coca Cola to product a very similar product – with an impact P&L, investors will be able to take this into account. Similarly, this approach will help show the net impact of different cars from creation to destruction,” he says.
Also on the horizon but coming soon to investor and trustee boardrooms is an accounting for the loss of biodiversity.
“We have lost 64 per cent of the world’s species, and the Amazon rain forest is at risk of turning into savannah. Yet the impact of investments on natural resources is not costed,” he says. “People are going to want to know whether their pension investments are deforestation-free or whether they are contributing to deforestation.”