Insurance groups and pension funds threaten to dump those “misaligned” with retiree objectives: FT
Institutional investors from nations including Australia with $1.5 trillion in funds have told asset managers to step up on climate action or risk being dumped, in a sign of a split in the investment industry over how to deal with the financial risks of climate change according to the Financial Times (FT).
A group of 26 financial institutions and pension funds from Australia, the UK and the US, convened by the People’s Partnership, Scottish Widows and Brunel Pension Partnership, have asked their asset managers to more actively engage with the companies they are invested in about their climate risk, the FT reports. Their Asset Owner Statement on Climate Stewardship defines clear expectations around how asset managers mitigate climate-related risks.
The People’s Pension said that their Statement intends to facilitate collaborative work to address “an ongoing and material divergence between asset owner expectations and implementation of climate stewardship that limits progress towards a net-zero world and better outcomes for beneficiaries.”
The election of Donald Trump, who has called climate change a hoax, and a pushback against so-called environmental, social and governance (ESG) investing by US Republican governors, has prompted several large asset managers to step back from public support for corporate action on global warming.
But the asset owners group argued that climate change was a long-term financial risk, particularly for pension funds that need to pay out retirement incomes for decades to come. One of the largest UK workplace pensions providers with six million members, the People’s Partnership, said it was concerned about the consequences of backtracking on climate and other sustainable investment issues.
“We are long-term investors,” said Leanne Clements, head of responsible investment at the People’s Partnership. “Ultimately the financial material arguments for climate change rise above short-term political challenges. I think it is important that asset owners maintain their course throughout this difficult period and hold their fund managers accountable for delivering a robust climate stewardship strategy that ultimately delivers value for its members.”
The group has set out a series of expectations from their asset managers, which it said would be included in how they are assessed, with the threat of a downgrade or withdrawal of the funds, according to the FT. Along with the threat of being dumped, the group has asked for the so-called stewardship function at the asset manager — which oversees interaction with the companies invested in — to be “appropriately resourced.”
“Poor or misaligned stewardship activity” could contribute to a downgrade in asset manager ratings, a review of the mandate or the selection of another asset manager demonstrating “greater alignment with the pension scheme’s objectives,” their statement said.
Asset managers also must be systematic in how they vote at shareholder meetings when it comes to climate issues. Previous research in 2023 on the voting records of big asset managers found varying degrees of “misalignment” with the client’s long-term objectives, particularly where US oil and gas investments were concerned.
Asset managers led by BlackRock have pulled back from industry coalitions on climate action, such as the Net Zero Asset Managers and Climate Action 100+, after being accused of anti-competitive behaviour. In recent weeks, big UK pension funds, including Nest, the workplace pension scheme set up by the government, have said they are in discussions with asset managers about their exit from these industry organisations.
