Responsible Investment

PLSA unveils evolution of pensions for responsible investment’

The Pension and Lifetime Savings Association (PLSA) convened at its ESG Conference 2023 for responsible investment. Cali Sullivan, PR Manager at PLSA, highlights enhanced practices to secure better outcomes for pension savers globally.

The conference captured a comprehensive exploration of ESG considerations for pension funds. Topics spanned emerging markets, biodiversity, stewardship, and the intricacies of the investment chain.

Cali Sullivan, PR Manager, PLSA

Member Commitment to Net Zero

The PLSA opened the day with the results of its recent climate change member survey. Emma Douglas, Chair of PLSA Board, unveiled the results which revealed a notable increase in pension funds aligning with net zero objectives. The statistics revealed 68% of pension funds committing to net zero alignment, up from 57% in May 2022. Moreover, nine out of 10 funds with such commitments are striving for net zero compliance by 2050. Among those, some aim to be compliant earlier, with one in seven by 2035 (14%) and one in five working towards 2035-2040 (18%).

ESG Insights from Diverse Perspectives

The conference showcased a diverse agenda of topics, featuring experts such as Dr. James Richardson, Chief Economist of the Climate Change Committee (CCC). He shed light on the UK’s strides in meeting carbon budgets, underscoring the urgent need to “quadruple the pace” in emission reduction efforts across sectors like building and transportation to meet future targets. 

Premier Miton’s Fiona Manning brought an interesting take on emerging markets to the conference, discussing how investing in these opportunities can help pension funds meet their sustainability objectives with PLSA’s George Dollner. Another session with Alyshia Harrington-Clark, PLSA, and Nikesh Patel, Van Lanschot Kempen Investment Management, focussed on strategic asset allocation and biodiversity – Nikesh’s key takeaway – there can be bigger impacts from organisations which stop doing “something” harmful rather than investing in the next “big thing”. 

Another panel discussed the frameworks, regulation and reporting impacts on trustees and funds, which included Mark Hill from The Pensions Regulator, Adam Gillett from Railpen, Tegs Harding from IGG and Maria Espadinha from PLSA. This session focussed on what good ESG reporting looks like and the necessary mechanics needed. Adam highlighted the need to always treat data for what it is and not read into it. Some numbers are “imperfect”, but you can come to learn what these numbers can and can’t tell. Tegs added that targets should be set on the actions that can be taken by the board and report on the data coming out of the backend. 

James Walsh from the PLSA conducted a session alongside Claire Curtin from the Pension Protection Fund, Laura Hills from the Church of England Pension Board, and Diandra Soobiah from Nest. The panel discussed the significance of engagement and stewardship for pension funds embarking on their net-zero journey, illustrated through a series of case studies highlighting various approaches. 

On a more granular level, Julius Pursaill from Cushon, shared some valuable insights on the challenge of decarbonising pensions, having already begun this journey.  

There was an insightful session with Aegon’s Hilkka Komulainen and the PLSA’s Joe Dabrowski, who both sit on the DWP’s Taskforce for Social Factors. They gave a whistle stop tour of the work of the Taskforce and the recently released guide for consultation with over 30 recommendations on how social factors can be better incorporated into investment decisions and stewardship policies. The PLSA will be publishing case studies on social factors at the PLSA Investment Conference in February 2024.  

The final panel session of the day was hosted by Tiffany Tsang from PLSA, who was joined by Matthew Cooper from PwC, Shirpa Gupta from Scottish Widows Master Trust, Ewa Jackson from BlackRock and Sarah Wilson from Minerva Analytics. This session focussed on the need to align values across the investment chain and on how to achieve that commonality. There were also discussions on opportunities and risks in both the investment and trustee space.

Macroeconomics and the impacts

Notable figures like Lord Gavin Barwell, former Chief of Staff to Theresa May and now Strategic Adviser at PwC, provided insights into macroeconomic and geopolitical landscapes. He also delved into the root causes behind soaring inflation rates. He attributed this economic surge to disruptions caused by the pandemic, characterising it as a global reset post-widespread lockdown. Barwell said the imbalance between escalating consumer demand and constrained supply chains was a direct fallout of the halted production during the pandemic. He also noted that the war in Ukraine made what was already a problem, much worse.  

The question Lord Barwell hears the most is, “have interest rates peaked?” His answer, they probably have, particularly in the United Kingdom and the Eurozone. His analysis depicted the intricate interplay between pandemic-induced economic resets, imbalanced supply and demand, geopolitical tensions, and their collective impact on global inflation and interest trajectories.

Navigating the Climate Emergency

A passionate panel session at the conference examined pensions' progress toward net-zero goals. Make My Money Matter's Tony Burdon stressed the urgency of addressing the climate crisis, urging immediate action by engaging companies to divest from oil and gas and invest in climate solutions. He emphasised the need to hold companies accountable and divest if they fail to change. Jacqueline Jackson from London CIV prioritised the entire investment portfolio over individual company shares, highlighting industries' inadequate focus on future solutions, impacting global biodiversity and supply chains. 

Analysis by Phoenix Group and Make My Money Matter proposed that the UK pensions industry could invest £1.2 trillion in climate solutions with appropriate reforms. UN Envoy Mark Carney hailed the transition to net zero as a significant commercial opportunity. Tony Burdon sought Mark's collaboration to drive reforms necessary for this substantial investment scale.

Redefining Fiduciary Duty

The concept of fiduciary duty was also discussed during the conference. Natalie urged the industry to reevaluate its meaning, suggesting that progress is impeded by an outdated interpretation unfit for addressing the climate emergency. Other experts echoed the sentiment, emphasising the need to consider global-scale impacts rather than solely focusing on individual risk and returns. 

Challenges with consultants' scenario analyses were also highlighted, with frustrations surrounding the narrow focus on financial impacts within an evolving world. Calls for a shift toward qualitative data over quantitative predictions were voiced, urging the industry to move beyond rigid numerical models towards more comprehensive narratives reflecting the truth.

A sustainable future

The PLSA’s commitment to enabling responsible investment spans diverse pension schemes, bolstered by imminent updates to our annual Stewardship and Voting Guidelines and focused efforts on enhancing the 'S' in ESG. Looking ahead, the PLSA will continue to lobby for significant government action on the green finance strategy, including the release of a green taxonomy for consultation, TNFD implementation, and heightened attention to social factors and ESG ratings, signalling a pivotal shift towards sustainable investing.

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