ESG – News
DC SCHEMES FAILING TO ADDRESS CLIMATE CHANGE RISKS
How defined contribution (DC) pension schemes address risks associated with environmental, social and corporate govern- ance issues (ESG) has become a regular theme and has been put into sharper focus twice over – by TPR annual survey of DC schemes and the passing of the Pension Schemes Bill into law. Firstly, questioning the role of DC schemes in addressing ESG risks, the TPR survey asserts that too few trustees and manag- ers of DC schemes are not paying the necessary attention to risks from climate change.
It shows that while the number of DC schemes whose trustees are considering climate change in their investment strategies has doubled since 2019, it still stands at just 43% – clear evi- dence that more action needs to be taken.
The annual survey also found that of those schemes whose trus- tees had not considered climate change in their investment strat- egies, at least 19% were planning to review this, while a more con- cerning 21% felt climate change was not relevant to their scheme. “I find it difficult to understand why one-fifth of schemes in our survey felt climate change was not relevant and see the new legislation as another important step towards changing such attitudes,” David Fairs, TPR’s executive director of regula- tory policy, analysis and advice, told portfolio institutional. “Our survey shows trustees of DC schemes must give greater atten- tion to the risks and opportunities facing their schemes from climate change. “However, I’m pleased to see that virtually every master trust surveyed, which are responsible for the vast majority of DC savings, has already considered climate change in their invest- ment strategies,” he added.
The issue becomes even more pertinent, given that the Pen- sion Schemes Bill has achieved Royal Assent. This means that
the requirements for the effective governance of climate change risks are now written explicitly into pensions law in the most comprehensive way to date. This in short, brings the issue of climate change risk on to the top table for DC schemes. “The Pension Schemes Act highlights that trustees need to get to grips with the effects of climate change, and trustees of larger schemes can expect regulations requiring them to consider, and report on, how they are taking account of, the risks and opportuni- ties arising from the response to this global emergency,” Fairs said. Trustees already need to consider climate change as part of their statement of investment principles, but the new act will significantly increase the expectations placed upon them. “The act shows considering climate change is no passing fad,” Fairs said. “All schemes, regardless of size, should already be consid- ering the financially material impact climate change could have on their investment and funding plans.” Although a phased approach means the new act will not affect all DC schemes to start with. In addition, from October, trustees of pension plans with more than £5bn in assets will have a legal duty to report on the risks of climate change within their portfolios in line with requirements in the Task Force on Climate-related Financial Disclosures. “Climate change risks will threaten pension savings right across the industry,” warned Fairs. “This means trustees should build their capacity in this area now, so they can under- stand what climate change will mean for their scheme and so be better placed to make decisions contributing towards good outcomes for savers.”
This spring, TPR plans to publish a strategy setting out how it will help trustees meet challenges around climate change. The pre-Covid-19 TPR survey was carried out across 200 sin- gle-employer and multi-employer group schemes and 16 mas- ter trusts between January and March 2020 before the first national Covid-19 lockdown.
MORE WOMEN ON FTSE350 BOARDS
There are no longer any all-male boardrooms in the FTSE350 in a sign that efforts to improve female representation are working. The milestone was originally achieved last May, but all-male boards reappeared a month later. Campaigners are hoping that this time the change will have more longevity. Ann Cairns, global chair of the 30% Club, a gender diversity pressure group, and executive vice-chair of Mastercard, said: “The eradication of all-male boards across Britain’s 350 biggest companies is cause for celebration, particularly at a time when Covid-19 threatens progress in women’s equality. “Time and again research has shown companies with diverse
28 | portfolio institutional | March 2021 | issue 101
boardrooms and senior leadership outperform their peers. Simply put, diversity is good for business. However, there is still lots more work to be done to make sure all-male boards remain a thing of the past. Last year’s fleeting experience of their disappearance across the FTSE350 proves how fragile progress in the UK’s corporate gender diversity remains. “And there’s even more work to do to bring female representa- tion up to parity on those boards, let alone boost the numbers of female chairs, CEOs and CFOs,” she added. Indeed, women occupy 34.3% of seats in FTSE350 board- rooms, but such progress is not repeated at the executive com- mittee level at 21.5%, which means campaigners have work to do to hit their 30% target.
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