Will the election of President Trump upend the broad consensus in the UK and Europe around sustainable investing and pensions?
The past few months have witnessed an unprecedented shift in approach in the US involving open hostility to net zero, sustainability and ESG. It isn’t just environmental policies under attack — there are also implications for both the ’S’ (social) and ‘G’ (governance).
The US corporate world has come under extraordinary pressure essentially to go along with the Trump project although, arguably, the biggest public shifts have come from US banks and asset managers with global reach. They are changing internal policies and leaving a range of climate change initiatives.
For now, a number of pension consultancies we approached have told us off the record that they are maintaining a watching brief and reviewing approaches, without making public comment at present. Meanwhile, fund experts predict big changes especially to stewardship and engagement.
UK changes
There has been one significant shift within UK pensions in recent months, with The People’s Pension moving a mandate worth £28bn from the US-based State Street Global Advisors to Amundi and Invesco, to better reflect the provider’s own ESG approach.
Mark Condron, chair of trustees for The People’s Pension says: “Our move to segregated mandates alongside partnering with world-class asset managers demonstrates our ongoing commitment to being a leading force for positive member outcomes in the pensions industry.
“These appointments highlight The People’s Pension’s broader mission to balance strong financial performance with responsible investment principles. By selecting Amundi and Invesco, we have chosen to prioritise sustainability, active stewardship and long-term value creation for our near seven million members.”
Campaigners certainly want to see more of the same. Share Action’s Louise Marfany, head of financial sector standards, says: “A gap is emerging between the rising tide of extreme weather events linked to climate change, from wildfires to flooding, and how US financial institutions are addressing the crisis. Political headwinds might have shifted, but climate change is only going one way and responsible investors can and do recognise that climate risk is a financial risk – and it is increasing.
“It’s heartening to see that pension funds in the UK have been setting clear expectations of the asset managers that work for them to demonstrate high standards of stewardship to help drive the transition to a greener and more inclusive economy. The People’s Pension showed exceptional leadership recently by moving mandates when they felt their asset manager was not doing enough.
“We are calling on other pension funds and asset owners to follow their lead, as well as calling on the Government to update the definition of pension trustees’ legal duties. It must be crystal clear that pension funds can and should be investing in the long-term interests of pension savers to prevent a dangerously heated planet.”
State Street may be a little unlucky to be the focus of so many headlines, perhaps because it has a strong European footprint in pensions. It has lost a mandate from the Danish academic pension fund AkademikerPension (which also recently dropped Tesla from its list of permitted investments). It also narrowly survived a vote in the Swiss Parliament to take a significant $55bn mandate for several Swiss state pension social security funds away from it.
The mood music emanating from the White House has been particularly discordant in climate terms, but it also involves specific policy changes as well as showing a huge divergence from Europe and the UK.
US policy actions
President Trump has signed numerous executive orders which include withdrawing the US from the Paris Agreement again. He has repealed climate elements of the Inflation Reduction Act of 2022, freezing grants and loans from day one, many to renewable projects, but also potentially removing planned requirements for energy efficiency standards for appliances and a methane emission fee.
In terms of greenwashing, the Securities and Exchange Commission (SEC) has announced a six-month delay to when funds need to comply with the recently amended Investment Company Act “Names Rule.” This aims to ensure that fund investments match their advertised ESG or sustainability strategies or face regulatory action. It is now delayed to mid-2026 for larger funds and to the end of 2026 for smaller ones.
The SEC has also issued new guidance around the disclosure of company meetings. As a result a number of passive investment houses have appeared to dial down their ESG demands, with Vanguard and Blackrock initially suspending engagement meetings, before shifting policies.
On the back of SEC guidance, Reuters obtained a communication from Vanguard to portfolio companies in the US aiming “to ensure companies understand that we invest and engage for investment purposes only, we
are taking some steps to further clarify communications regarding our engagements with portfolio companies”.
Climate retreat
The Net Zero Asset Managers initiative suspended its activities for review after the exit of BlackRock in February.
In a statement at the time, NZAM said: “As the initiative undergoes this review, it is suspending activities to track signatory implementation and reporting. NZAM will also remove the commitment statement and list of NZAM signatories from its website, as well as their targets and related case studies, pending the outcome of the review.”
Exits from the initiative and its banking equivalent include other giant US firms such as Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley.
State Street, JPM and PIMCO have also pulled out of the Climate Action 100 initiative, another stewardship initiative – which aims to engage with 170 companies on emissions reductions. Meanwhile, BlackRock transferred its membership to its international arm.
This retreat has attracted the attention of UK campaigners such as Share Action. In research published in February, State Street was criticised alongside BlackRock, Fidelity International and Vanguard for some of “the worst voting performance yet” on shareholder resolutions aimed at tackling social and environmental issues in the year 2024.
Share Action said these four largest asset managers collectively supported just 7 per cent of key shareholder resolutions.
Fiduciary tests
New Fund Order author, fund expert and asset management non-exec JB Beckett notes the dichotomy for US firms. He says: “Let’s be honest that when we say ESG we are really talking about a shift in balance on climate-related policies, particularly from US firms.
“The dichotomy for those investing in asset managers who traverse the Atlantic is whether a duality arises. Few will observe varying actions and messages by asset managers at a state-by-state level in the US, and Trump appeasement. Ergo defections from ClimateAction100+, the Principles for Responsible Investment, the Net Zero Alliance versus retaining public commitment to various ESG and sustainability labels and requirements here in the UK and Europe.
“I am not exactly sure how that reconciles for UK asset owners, but it is worth reminding US firms that whilst the fiduciary argument in the US has rowed back on climate risk, Trump does not set the UK’s fiduciary test. In the UK, fiduciary for pensions at least, was set down by the Law Commission reviews that were adopted by the Department for Work and Pensions,The Pensions Regulator and the Financial Conduct Authority. For trust-based structures, fiduciary is set down in common law and the Companies Act.
“It is on this basis that all asset managers need to engage asset owners in the UK if they hope to win or retain assets. I am not sure if soft double-speak commitments will satisfy.
“Belying all is the divest versus engage friction. For pensions I think that is ably marked out by reports from Make My Money Matters and Share Action that have castigated asset owners for a lack of outward progress. However, these reports cannot hope to capture the significant progress internally even if this is not being captured. Firms are rightly concerned with anything that may be construed as greenwashing, which has translated into outwardly less ambition, less noise.
“To publicly divest a sector is an easy win with NGOs, but a commercial risk with advisers and investors. I have also seen engagement and divestment as absolutely symbiotic. You need a stick as well as the carrot.”
Julia Dreblow, founder of SRI services, says that main challenges “are likely to be client confusion” which takes the focus away from the real issues including climate risk. That includes people being led to believe that ESG is terrible when it is mostly about business and investment risks.
“This stuff, however badly explained by some, particularly historically, is deeply relevant to fund performance: there will be tipping points — we just don’t know when.”
She says one issue is “whether or not we should build products around stewardship activity, if fund managers are being prevented from doing meaningful engagement”. She says that pertinent questions include: ‘should we focus more on what companies actually do’ rather than ‘promises’? She highlights BP as an example.
“My sense is that industry (including the FCA) is more wedded to engagement than end clients are – although engaging and voting matter a great deal. Either way this could get interesting, and certainly has implications for voting strategies – split voting may become normal, when previously we all thought it was a daft idea.
“Some fund managers can probably stick to their knitting and may thrive doing so, but there are many established UK firms that are now US owned, and others, for example, BlackRock, are too big to ignore, so as an industry we cannot ignore this. The implications could be huge. At what point do we pass this burden on to trustees, scheme members and individual investors? I am not sure. It would be wrong to ignore it for too long as this could accelerate.”
Robert Reid, director of Syndaxi Financial Planning says: “If you stand up in front of people in a workforce to talk about sustainability and ESG, you will now get people firing back at you. You will not get employers wanting ESG or sustainability to be a default fund. It has not gone back as far as say ethical has, but it is back to being a preference.”
If that is at the level of a smaller employer schemes, it does seem that change is afoot even from key global advocates. Writing in February, on the organisation’s blogsite, David Atkin, CEO, Principles for Responsible Investment, whose signatories represent £98 trillion in assets, said: “I’ve served as CEO of major Australian pension funds, and I’ve seen it proven many times that quite simply, without a responsible investment lens, you can’t see the full picture.
“This should be uncontroversial – but it hasn’t been communicated clearly and consistently enough, and this has enabled opponents of RI to exploit a lack of mainstream understanding about what it is that investors actually do.
“At this point, we see it as our responsibility to counter this confusion – we must remove any possibility of misunderstanding about the role of responsible investors in the financial system. Re-articulating the financial value that results from decisions informed by RI considerations will be a critical, ever-evolving tool for us and the RI community.”
BOX: A single sustainable policy
While not directly concerning Trump, it is interesting to see pensions consultants and some asset managers seeking simplification of the range of UK requirements around climate disclosure.
The Investment Consultants Sustainability Working Group (ICSWG) formed in 2020 to “drive better sustainable investment practices” suggests the current regulation amounts to box ticking, which actually distracts schemes from making an impact.
It is now calling for the creation of a single sustainability policy setting out relevant governance arrangements, investment beliefs and risk management processes. This would be subject to review at least every three years.
For larger schemes, this would include an annual report describing the implementation of sustainability policy. For other schemes, it would involve a triennial sustainability report describing policy implementation. This would replace all the current mandatory and voluntary sustainability reporting requirements, including implementation statements, Stewardship Code reports and Taskforce on Climate-related Financial Disclosures.
