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ESG roundup: Pensions Trust, EU climate proposals, Vigeo governance study

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The £5.7bn (€6.9bn) UK occupational pension fund The Pensions Trust has announced it has adopted a climate change policy to help ensure climate change risk is explicitly considered throughout the investment process.

Its policy is firstly about understanding how exposed its portfolio is to climate change. 

This will include a review of its portfolio to understand where there might be value at risk, which will be used to inform its future investment strategy.

The second part of its policy is about making sure new and existing investments are managed in way that takes account of climate change risks.

The Pensions Trust has therefore updated its Statement of Investment Principles and voting and engagement policy to make reference to climate change risks.

It will also incorporate climate change risk analysis and reporting requirements into new mandates where appropriate and make sure this is part of the discussion during manager update meetings.

The third part of its policy is about actively engaging with the wider investment community and policymakers on climate change.

As part of this, The Pensions Trust – which has been a signatory to the UN-backed Principles for Responsible Investment (PRI) since May 2010 – has decided to become a member of the Institutional Investors Group on Climate Change (IIGCC).

The pension scheme received an A rating in the Asset Owners Disclosure Project (AODP) survey 2013-14 on the management of climate change risks and opportunities for pension and superannuation funds.

The Pensions Trust now ranks 17 out of 458 asset owners on the Asset Owners Disclosure Project’s list of top-rated asset owners, up from 92, a C rating in 2012.

The top-rated asset owners are those that score AAA to A.

Stephen Nichols, chief executive of The Pensions Trust, said: “The Pensions Trust is thrilled to receive an A rating in the AODP survey. The potential impact of climate change is a key focus area for the Trust, and this achievement recognises the work being undertaken to ensure regulatory risks from climate change are considered in investment decisions, and further reinforces the Trust’s commitment to being a responsible investor.” 

In other news, European investors worth €7.5trn have urged policymakers to act quickly on climate proposals by the European Commission (EC).

Stephanie Pfeifer, chief executive of the IIGCC, said about the publication of the EC’s 2030 energy and climate proposals: “[The] proposals are an important first step to restoring investor confidence in the EU’s vision for a low-carbon energy future. A 40% emissions reduction target is the minimum necessary to keep Europe on course for a low-carbon economy, as outlined in the EU’s 2050 Roadmap. Achieving this target is well within member state capabilities and crucial for long-term policy certainty.”

Pfeifer said plans for reform of the Emissions Trading Scheme (ETS) had been long awaited and that the establishment of a reserve mechanism that could support a strong carbon price was a welcome move. 

However, she said investors would like more clarity on how this reserve mechanism would bring about a meaningful carbon price over the long term.

She added: “A well-functioning ETS, which puts a high and stable price on carbon, is critical to delivering investment in low-carbon and renewable technologies. The separate target for renewable energy must therefore be designed so it complements the broader mix of EU climate policies. National governments will now discuss these proposals ahead of a meeting of leaders in March.

“Investors need policy fixed for the long term to plan multi-decade energy investments. The longer policy is delayed, the more severe Europe’s energy investment challenge becomes. Policymakers should act with urgency and waste no time in turning these proposals into legislative reality.”

Lastly, a survey by extra-financial analysis provider Vigeo on governance structures and corporate responsibility has found significant differences between countries and sectors.

European companies are most advanced regarding the supervision of corporate responsibility by their board of directors and within their audit and control systems, according to the study, while North American companies are more advanced in the integration of corporate responsibility criteria within their executives’ remuneration.

Companies operating in highly regulated contexts, or in sectors exposed to stakeholder scrutiny, are those that strive most to demonstrate corporate responsibility is actively supported by their directors.

Vigeo’s study provides a list of companies whose governance structure is more advanced in the leadership and control of corporate responsibility processes. 

Fouad Benseddik, director of methodology and institutional relationships at Vigeo, said: “Although much remains to be done, innovative practices identified by Vigeo show that tools and processes exist that will facilitate the implementation of corporate governance.”

Vigeo carried out the study based on the assumption that corporate responsibility is more credible if supervised by a governance structure.

Within the study, the supervision by the board of directors, the perimeters of the audit and internal control and the inclusion of corporate responsibility criteria in executive remuneration are compared between regions and sectors.

The survey was based on its rating of 1,223 companies listed in North America, Asia and Europe.

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