Asset owners should incorporate climate transition plans into mandates with their managers, according to proposals that will underpin UK regulation.

The recommendations were made in draft guidelines from the group advising the UK government on upcoming rules for transition plans disclosures, known as the Transition Plan Taskforce (TPT).

The 43-page document – one of seven put out by TPT today – is specifically aimed at asset owners. It was developed in collaboration with representatives from Railpen, Merseyside Pension Fund, National Employment Savings Trust, Aviva, BT Pension Scheme and Aegon UK.

The Pensions Regulator, the London Stock Exchange Group and a number of not-for-profits are also represented on the working group.

TPT published its general disclosure framework last month, outlining 19 elements that contribute to a credible climate plan. Today’s proposals are intended to provide asset owners with relevant context for 11 of those elements, including strategy, metrics, and engagement with peers and players throughout the value chain.

Asset managers and banks have been provided with similar draft guidance.

Incorporating transition plan-aligned investment objectives

Among other things, the paper suggested that asset owners could consider “incorporating transition plan-aligned investment objectives and restrictions in mandates and contractual agreements with asset managers”.

“At a basic level, asset owners produce mandates for their portfolio in order to achieve outcomes for their beneficiaries, while asset managers help to achieve these outcomes through their expertise, investment products, and stewardship of these portfolios,” it stated.

“Asset owners, especially those that have a substantial portion of their assets managed externally, are reliant on their asset managers to implement and facilitate elements of their investment-related transition plan. Therefore, incorporating climate-related considerations into an asset owner’s contractual governance and accountability mechanisms with its asset managers (including asset manager selection, appointment and monitoring and legal investment management agreements) are important ways in which asset owners can embed and accelerate the transition to a low-GHG and climate-resilient economy.”

Encouranging collaboration

It also encouraged asset owners to engage and collaborate with asset managers, investment consultants, proxy advisers, ESG ratings providers and other service providers in order to help it achieve its climate ambitions.

All of the TPT’s recommendations were based on the definitions and approaches developed by the International Sustainability Standards Board, whose new standards the UK government had agreed to integrate into relevant rules.

The Financial Conduct Authority is expected to use the TPT’s guidance as the basis for updated climate disclosure requirements. It will start by introducing the rules for listed companies, but plans to roll these out to regulated asset owners and managers in due course.

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