News | ESG
Pensions minister increases the pressure on schemes over ESG
Pensions minister Guy Opperman has sent a letter to the 50 largest pension schemes in the UK, asking them to dis- close how they have complied with new rules on ESG reporting.
Following the introduction of ESG criteria to the Statement of Investment Principles (SIP) in October, pensions minister Guy Opperman has demanded to see how schemes are taking ESG rules into account. Opperman warns that some of the biggest schemes in the UK have not yet complied with the new ESG rule. “Despite some good work by a number of schemes, some are not acting. We need urgency on this vital issue from trustees and investment managers. “With new regulations coming into force this week, I’m demanding that the remain- ing pension schemes and the fund manag- ers they appoint stop shuffling their feet and meet their responsibilities to savers now and in the future, and the future of the planet.”
Besides spelling out in more detail what pension schemes have to do in order to comply with new rules, from awareness of
His warnings somewhat contradict earlier research published by Hymans Robertson, which stated that 96% of trustees are pre- pared for the new regulations. Based on a survey among trustees of UK schemes, the consultancy concluded that the vast majority had prepared for the new rules although more than 80% raised challenges.
financially material considerations to hav- ing a stewardship policy, Opperman also wants to know what substantive changes schemes have made to their investment strategy.
Low engagement from members was seen as a key obstacle for 44% of respondents, followed by lack of clarity about the regula- tor’s expectations (43%), limited time and resource (40%) and limited knowledge and understanding around RI issues (40%). Integrating ESG criteria into the Statement of Investment Principles is a UK imple- mentation of the updated EU Shareholder Rights Directive, it applies to DB and DC schemes with more than 100 members. As of October next year, schemes will also have to publicise an implementation report, which outlines to what extent trustees have taken steps in line with their investment principles.
Cement climbs up the sustainability agenda over pollution concerns
While transition to renewable energy has been one of the top priorities for inves- tors, they are now also increasingly con- fronted with the cost of hidden polluters, with cement production being one of the key culprits, research shows.
Urbanisation and growing populations are some of the key drivers behind the increase in cement production, leading to emissions rising by 70% over the past 20 years. Cement production now accounts for 8% of all carbon emissions, according to research by Share Action. During the next 30 years, production is expected to rise by a further 23%, the campaign group says. Cement manufacturers can apply a variety of methods to reduce their carbon foot- print, ranging from reducing the clinker-to- cement ratio, fuel switching, improve-
ments in energy efficiency, and the use of innovative technologies such as carbon capture and storage (CCS). Half of all CO2 emissions are caused by the process of breaking down clinker lime- stone into cement. Firms could significantly reduce the clinker ratio by using alternative ingredients such as limestone. Moreover, cement production is currently heavily reli- ant on fossil fuels, it accounts for more than 80% of all energy used, switching to renewable energy could help bring down emissions. Individual cement plants, including Norwegian plans Norcem Brevic and HeidelbergCement are
also experi-
menting with carbon capture in a bid to effectively make their production carbon neutral.
The report also highlights that investors in cement production firms should consider
the impact of policy risks, a tightening of carbon pricing standards in the EU in par- ticular. European Cement production firms are currently receipients of EU subsidies in the form of free carbon credits in a bid to prevent them from moving production out- side the EU. However, the report warned that
there
might be a risk of these incentives being removed, which could hit the earnings growth of European cement production firms.
While corporate engagement is usually focussed on shareholders, the report also highlights that bondholders could poten- tially have a significant impact. The 10 larg- est cement companies, which account for 40% of global production, all rely on the bond market for external financing, Share Action said.
Issue 88 | November 2019 | portfolio institutional | 35
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