The Pensions and Lifetime Savings Association (PLSA) is calling for pension fund investors to hold the directors of the companies in which they invest individually accountable on how well they manage climate change risks, it announced through its updated annual Stewardship Guide and Voting Guidelines.

The association said the guide is especially relevant this year, following new regulations introduced in October 2019 requiring trustees of all schemes to understand and disclose how they include financial materials with ESG factors and how they undertake stewardship in their investment decision making.

It also includes a toughened-up section on climate change and sustainability, reflecting pension schemes’ heightened focus on ESG and the growing number of climate-related resolutions tabled at annual general meetings, it said.

According to the PLSA, climate change is a systemic issue affecting nearly every industry and nearly every firm.

Although climate change will impact some sectors more than others, it is likely that most companies will need to assess its impact on their strategy and business model, it added.

The guide said investors should consider voting against the re-election of a responsible director or the re-election of a chair if:

  • Shareholders have attempted to engage on the issue and yet companies have still failed to demonstrate effective board ownership, for example providing a detailed risk assessment and response to the effect of climate change on the business, or incorporating appropriate expertise on the board;
  • The business is large, and is not already moving towards disclosures consistent with Taskforce for Climate Related Financial Disclosure (TCFD), Carbon Disclosure Project (CDP), Sustainability Accounting Standards Board (SASB) or another established third party framework, and smaller businesses are not readying themselves at a pace proportional to the resources available;
  • The business has operations that are highly carbon intensive and has not made sufficient progress in providing the market with investment relevant climate disclosures including committing to publish science-based targets;
  • The company has not listened to investor concerns about any direct or indirect corporate lobbying activity whose objectives are considered to frustrate climate change mitigation;
  • The company has not responded appropriately to the result of a climate change related resolution, whether binding or not, and whether it was actually passed or not.

The PLSA said investors have a fiduciary duty to go beyond mere compliance and they and their asset managers should hold directors accountable.

Caroline Escott, policy lead investment and sewardship at PLSA, said: “Pension funds are ideally placed to encourage companies to behave in a way that ensures sustainable business success.

“We would also urge scheme investors to use the 2020 AGM season to hold directors individually accountable on issues of continued concern – doing so can be a powerful tool to effect change.”