The Pensions and Lifetime Savings Association (PLSA) has published a report containing analysis and recommendations aimed at a comprehensive response to “the challenge of climate change-aware investment”.

The report was informed by a series of virtual roundtables held over the summer with key representatives of the PLSA’s members to hear their concerns and ideas about the best ways forward to enable the pension fund industry to respond to the climate change challenge. 

“We offered an initial analysis of the main barriers and issues and gained general consensus that this analysis is right,” said the PLSA.

“There is a real desire to do more in terms of more effectively investing appropriately in response to climate change, but there is considerable confusion about the practicalities, not helped by the inconsistent use of language across the industry and perceived risks of greenwash from some market participants,” its report continued.

The PLSA developed analysis and recommendations for seven “issues”. The recommendations are for action by the PLSA and others to further assist pension funds and also “for changes that could be made to the regime for other parties in the investment chain”.

The issues and recommendations are:

  • Definitions of climate-aware investment – The PLSA recommends a joint-industry/government review to examine the wide range of competing standards and definitions that currently exist, any initiatives already underway to achieve harmonisation, and to identify a framework to achieve a common language and taxonomy ahead of COP26.
  • Poor-quality climate data and information The PLSA will encourage the government and regulators to move towards more widespread adoption of the Task Force on Climate-related Financial Disclosure recommendations and support measures to increase equivalence of climate reporting or regulatory obligations from the top to the bottom of the investment chain.
  • Climate expertise and education – The PLSA will encourage more industry-led ESG training and education, work with the pensions regulator to ensure guidance for schemes is suitable and support the Financial Conduct Authority in working to design explicit climate conduct expectations in its forthcoming regulatory regime for investment consultants.
  • Articulating investment manager requirements more explicitly The PLSA will work with the International Corporate Governance Network in revising and renewing its Model Mandate and produce guidance, templates and best practice material for members and trustees.
  • Enabling better climate stewardship – The PLSA will further develop its guidance for members on what good practice expectations ought to be with regard to stewardship services and continue to encourage schemes and managers to adopt the Stewardship Code, and to play a pro-active role in industry stewardship groups. It also commits to working with the investment industry and regulators to find solutions to the challenges schemes face when exercising stewardship and voting ‘rights’ in pooled funds.
  • Improving supply of appropriate climate ‘products’ – The PLSA will continue to make the case to government for the issuance of a sovereign green bond and work with the investment industry and regulators to develop principles for ESG asset management funds/products to adhere to on ESG generally, or specifically with regard to climate.
  • Communicating and explaining climate-aware investment The PLSA will explore the feasibility of creating a ”Pension Quality Mark” for ESG and build on its work on implementation statements to consider how best to support members in their communications with beneficiaries.

In a foreword to the report, chair Richard Butcher said that over the course of the PLSA’s research, “I realised that the investment chain has been unfairly presented”.

”There is no ghost in the machine trying to block the progress of investing for good, motivated, perhaps, by a misaligned incentive or pecuniary interest. There is no ghost in the machine trying to exploit an imagined opportunity to steal a leap on their competitors. There is no ghost in the machine that sees climate change or the risk of climate change as some sort of conspiracy theory that it is their duty to thwart.

“Now that’s not to say there aren’t systemic challenges that slow or can even halt progress – there are – but they are caused not by ill-will but by history and the challenges of operating systems.

“That’s why this report, with its system-wide assessment of the challenges, is so important. It offers ways to clear some of those historic barriers and to simplify the complexities of the system. Its recommendations for action are ones we at the PLSA, and I hope the whole investment industry, will champion and deliver.”

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