Several senior people at large UK pension funds have signed a Climate Charter launched by mallowstreet last week. The signatories pledge to recommend to their boards that each of the fund’s investments is scrutinised about its climate impact and managers engage with companies on reducing carbon emissions.
The Charter was created at a mallowstreet event held from 24th to 26th June, out of a sense among trustees that not enough is being done to combat global warming. The Charter commits individuals rather than pension funds or trustee boards, and reads:
This Charter is signed in our personal capacity and is not a reflection of the views or position of any Pension Fund.
We, the undersigned, agree with the UK government that there is a climate emergency. We also know that current actions and responses are insufficient to avoid catastrophic damage to our planet. This climate emergency will have a material financial impact on every Pension Fund and all our futures.
As Chairs, Investment Committee members, Pension Managers and Trustees, we pledge to recommend to our boards and investment committees:
To ask, “What is the impact on the climate?” for each and every investment that is made.
To demand that the carbon impact of every investment is measured and reported on by our managers. We will work actively and collaboratively to develop complete carbon measurement standards.
To insist that each of our investment managers actively engage with corporate boards underlying our investments, so that every company develops and discloses both a complete measure of their carbon impact and a clear business plan to transition to a low carbon future.
To review, and ultimately recommend the termination of, any investment manager that fails to support and actively engage in stewarding the transition to a low carbon future.
Signatories say action is needed now
At the mallowstreet event, delegates were polled on the question, ‘Are we running out of time when it comes to addressing and tackling climate change?’ An overwhelming 89% of the audience said ‘Yes’.
mallowstreet chief executive Stuart Breyer said: “The genesis of the Climate Charter came from our members, not us – it was developed in response to people approaching [mallowstreet co-founder] Dawid Konotey-Ahulu and me, asking us how mallowstreet could help move things forward.”
“The Climate Charter is simple,” said Breyer; it asks individuals to consider the impact of climate for each investment decision they make, and to engage actively with investment managers and corporate boards.
“At times it is an uncomfortable conversation, requiring people to look inward, and find the courage to say, ‘We are not doing enough’ or, ‘What we are doing is not quick enough’,” he noted, adding: “I am really excited that the industry is getting behind this initiative.”
mallowstreet co-founder Dawid Konotey-Ahulu, who was hosting the event session at which the charter was created, said: “We had a chance to halt climate change 30 years ago, but we missed the opportunity, and now we are out of time. But to see the roomful of pension scheme CIOs, trustees and managers spontaneously agreeing to take radical, decisive action now was incredible. I cannot remember being a part of a discussion like it.”
mallowstreet co-founder Rob Gardner said the charter recognises that there are just 11,143 days left to alter the greatest risk facing our planet.
Asset owners can take action via asset managers, but Gardner said that “there is a big spectrum amongst asset managers”. The majority, he said, “know it’s the right thing to do but recognise it’s not clear how best to make the change”.
To ensure asset managers do what it says on the tin when it comes to climate change, investors should ask whether they have signed up to the UN PRI as a minimum. However, “the simple test is, can they evidence how climate change is a key part of decision-making, and is it integrated into their investment process”, said Gardner.
Signatories urge for action
Paul Trickett, who chairs the trustee boards at Santander and Railpen and is a trustee on the Mineworkers’ Pension Scheme, signed the Charter saying it provides a basis for increasing the focus and urgency on climate issues. “Focus will lead to more action,” he added.
Trickett said the time has come for asset owners to focus on this as a core part of their investment decision-making. “I don’t know exactly how urgent it is, but I would prefer not to wait any longer,” he noted.
Investment returns should not suffer in the long run, though they may do in the short term, he said, which means “asset owners will need to balance conflicting priorities - but they are used to that.”
Mark Tennant, chairman of the £8bn Centrica Common Investment Fund, is also among the first signatories of the Charter. “The problem we have with climate change is that everyone talks about it and everyone is deeply concerned, but very little is being done,” he said.
Government should be an agent to reach this goal but “has no plan” according to Tennant, despite parliament’s ambition to reach net zero by 2050, therefore asset owners have to step into the gap.
“We hold assets for future generations. For them climate change matters,” he said. “The younger generation requires us to look at the carbon footprint and the social impact of the investments we make on their behalf.”
Tennant would ideally like to see a regulatory requirement for UK companies to report on their carbon footprint annually and for those who do not reduce it to be forced to buy carbon credits, so that investing in carbon intensive firms would not yield better returns than holding low carbon firms.
Investment consultants need to do more
Climate change is “not just happening at the north pole or somewhere else, it’s in our back garden”, said Rosie Lacey, group pensions manager of the £970m De La Rue Pension Scheme, who also signed the Charter.
“We collectively, managers and pension funds, have huge buying power, and if we don’t action, nobody else will,” she said, stressing that doing something is urgent. Lacey said industry should lead on this as government is hampered by other interests, such as the protection of jobs.
She also wants to see more initiative from investment consultants, noting that she has yet to see them prompt trustees to consider climate as an investment risk. “It should be investment consultants saying this is something you need to think about,” as trustees might not be aware of it, she noted.
Big differences among asset managers
Creating an orderly transition to a low carbon economy would improve financial risks and returns, believes Nick Spencer, sustainable investment adviser at Gordian Advice, noting that it would therefore be in line with trustees’ fiduciary duty to ask about the climate impact before an investment decision, making sure managers are engaging with companies to help their transition.
However, engagement levels among asset managers still vary significantly, sustainability non-profit organisation Ceres found. While PIMCO voted 100% for climate related proposals, others have much lower scores.
Ceres: managers’ proxy voting record on voting for measures against climate change: Source: Ceres
Investors also need to be alert to a possible disconnect between marketing and investment processes, warned Spencer, who believes there is “a huge amount of greenwashing” in the industry. To avoid this, asset owners need to monitor their portfolios, look at the way decisions made and implemented and interrogate managers behind those decisions, he advised.
Pension funds and managers that want to take action on climate change can do so through “clear, simple but entirely doable steps”, he said.
“It is about asking the questions on the impact, it is about actively seeking better measurement and then looking to engage and ask for disclosure around how the business is going to move forward. That will not only help improve and protect financial risk and returns but also the environment and the planet."