UK investment consultants that came together to form a sustainability working group have produced a guide to help pension scheme trustees assess their consultants on their climate competency.

“Climate change is fast becoming the defining issue of our time and trustees of pension schemes need to know their advisers are on the front-foot with this issue,” said Ian Gamon, of consultancy LCP and part of the Investment Consultants Sustainability Working Group (ICSWG) regulation team.

The launch of the guide comes after the government earlier this week delivered the draft regulations to implement a plan for mandatory climate risk reporting and governance by larger pension schemes.

Announcing the guide today, the ICSWG said it was “a practical response to the 2020 Pensions Climate Risk Industry Group (PCRIG) consultation, which recommended that pension scheme trustees require their investment consultants and asset managers to demonstrate climate competence”.

PCRIG, an industry group, published its final, non-statutory guidance for trustees this week to coincide with the release of the Department for Work and Pensions’ draft regulations and statutory guidance.

The investment consultants’ guide was developed through collaboration between all 17 member firms, with the ICSWG also having sought challenge from the Principles for Responsible Investment, ShareAction, and The Pensions Regulator.

Amanda Latham, policy and strategy lead at Barnett Waddingham and lead for the ICSWG’s stewardship team, told IPE the group also looked at the Association for Member-Nominated Trustees’ 2018 guide to holding consultants to account.

The investment consultants’ guide sets out five themes against which trustees should expect their investment consultants to demonstrate their climate competency:

  • Firm-wide climate expertise and commitment;
  • Individual consultant climate expertise;
  • Tools and software (to support climate-related risk assessment and monitoring);
  • Thought leadership and policy advocacy;
  • Assessment of investment managers and engagement with them.

“The guide represents a powerful example of what can be achieved through a collective commitment to improvement and collaboration in the delivery of meaningful change”

Amanda Latham, Barnett Waddingham

Examples of “positive” and “best practice” indicators are proposed for each theme to help trustees assess their consultants in each area. The ICSWG said this underscored the group’s commitment to ongoing improvement of climate change practices.

“The indicators are deliberately stretching with the aim of raising investment consultants’ standards and it should be acknowledged that some of these indicators will be aspirational,” said Luba Nikulina, of Willis Towers Watson and co-chair of the ICSWG.

”However, this is an important step towards developing good practice and practical guidance for schemes, in particular those seeking to align with the recommendations of the Taskforce on Climate-Related Financial Disclosures.”

Barnett Waddingham’s Latham said the guide was “a powerful example of what can be achieved through a collective commitment to improvement and collaboration in the delivery of meaningful change”.

“But it doesn’t end here,” she added. “We will be engaging with trustees, regulators and action groups, to measure the impact of the guide and will share progress later this year.” 

Trustee group welcome

Janice Turner, co-chair of the AMNT, said she “wholeheartedly” welcomed the new guide from the ICSWG and would be encouraging trustees to use it.

“Trustees are rightly coming under more pressure including from new regulations to have greater awareness of the risks of climate change and to actively consider how their schemes should address this global threat. In order to do this they require high quality advice from their consultants.

“We applaud the ICSWG’s attempt to deliver this by setting out how trustees can assess their consultants’ climate competency. We see it as complementary to our guide for trustees in holding their investment consultants to account.”

The ICSWG guide can be found here. The ICSWG was announced in September, with 12 firms involved at the time.

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