Caroline Escott explains why climate change is still at the top of the responsible investment agenda for the PLSA.
Only a few months ago, we all thought that 2020 was going to be the year where any other global issue would struggle to compete with the impending climate emergency. Little did we know.
It’s clearly right for schemes to be focused on getting to grips with the impact of Covid-19. The PLSA will continue to support our members in doing so. But we’ll also continue to help private and public sector schemes in 2020 and beyond to ‘Invest for Good’. This will include building upon our previous Worth of the Workforce work to highlight the continued importance of the ‘S’ in ESG in a Covid-era world; as well as ensuring schemes can make sense of the rapidly evolving regulatory, legislative and product landscape on climate investment.
The PLSA believes that schemes, as long-term investors, have a fiduciary duty to consider climate risk and opportunities. We’ve worked with DWP, TPR, MHCLG, the FCA and others to ensure that the new regulatory duties on both trust-based and contract-based schemes are proportionate and pragmatic, and to provide practical guidance for those schemes at an early stage of their responsible investment journey.
The year ahead
Our 2020 work builds on and deepens our policy programme in this area, not least because the changes which came in in 2019 were only the start. The next few years will see schemes required to disclose how they have implemented the ESG and stewardship policies they discussed in their SIP; invest in line with new statutory guidance (LGPS funds); document their asset manager arrangements and their voting behaviour; and report using the Taskforce for Climate-Related Financial Disclosure (TFCD) recommendations (“large asset owners”), to name but a few – those are just the things that we know about now. With the UK still committed to hosting the delayed COP26 climate talks, our policymakers will remain keen to demonstrate their global leadership in tackling climate change.
The PLSA is unique in that our membership comprises actors from across the institutional investment sector. We’re therefore well placed to see that climate change is a whole-of-investment-chain issue, which needs whole-of-investment-chain solutions. As the end client, schemes and funds are in a privileged position, being able to use their influence to draw good climate investment practices up from the companies through their intermediaries. But they need others – including asset managers, consultants, lawyers, custodians and the investee companies themselves – to work in alignment with their goals, and they need a policy framework which allows this to happen.
Several barriers remain, from poor quality and inconsistent data from many companies and investment service providers, to prevailing confusion around definitions of responsible investment and continued gaps in resource and expertise at every stage of the chain. The PLSA is committed to working with its members, policymakers and other industry bodies to finding practical and policy solutions which overcome these challenges.
This year, we have a significant programme of policy work dedicated to Investing for Good. We continue to provide guidance to ‘fill in the gaps’ on schemes’ understanding on climate. For instance, we beefed up our climate voting guidance in our February Stewardship Guidance and Voting Guidelines 2020 report, we sat on the Pensions Climate Risk Industry Group (PCRIG) to produce TCFD guidance for schemes, and we’re about to publish our guidance for schemes on producing implementation statements on ESG and climate.
As with all our work, member input will be vital. Our Chair, Richard Butcher, will be holding virtual roundtables over the summer with both fund and business members to find out more about the challenges they’re facing on climate investment. This will then be used to shape our emerging policy and industry solutions in a ‘Recommendations for Action’ report to be published in the autumn.
We’re also asking our members for examples and case studies of how they have approached climate and ESG factors in their portfolios. What influenced the approach? What steps were taken? What challenges were faced and overcome, and with what outcome? Not only will this be an opportunity for PLSA members to showcase their work, but we’ll pull the responses together into online resources so our fund members can better learn from each other.
Like Covid-19, climate change has global system-level consequences. How well schemes invest with an eye to mitigating the risk climate poses to their portfolio will have an impact on the value of beneficiaries’ savings as well as on the very nature of the world into which savers will retire.
We want to hear from you. Please contact [email protected] or get involved in the Twitter conversation using #PLSAInvestForGood.