Pensions minister warns of trustee climate change “negligence” as UK launches Green Finance Institute

Stark warning for trustees as government launches major sustainable investment push

The UK Pensions Minister has cranked up the pressure on the country’s trustees to tackle climate change within their funds, saying that those who didn’t consider its risks are “bordering on negligence”.

It comes on a day when the government – with its net zero carbon commitment by 2050 – set up a green finance institute and called for all listed companies and large asset owners to ramp up disclosure of climate related risks.

According to a speech set to be given at an event as part of London Climate Action Week on the role of pension funds in the low carbon transition, Pensions Minister Guy Opperman was expected to say that pension savings had a “pivotal” and “symbolic” role in “prevent[ing] a climate emergency descending into full-blown climate chaos”.

“Pension investments, with their long time horizons and wide take-up across the working-age population, are ideally placed to win widespread support for investment in action which mitigates and adapts to climate change,” he was slated to say. “It puts pension saving at the centre of all our commitments to prevent climate change.”

Opperman pointed to the fiduciary duty of pension trustees to address the issue.

“Let’s consider what prudence means in the scenario of those oil & gas holdings, and climate change. Perhaps some of those trustees think they are being prudent by timing the market perfectly and realigning their portfolios just before valuations tumble.

“The downside of acting prudently in response to climate change – adjusting your portfolio, engaging with investee firms, and casting your votes to take account of both the high likelihood of climate change, and the high likelihood of government seeking to prevent it – seems minimal.

“But the downside of not acting to take account of climate risk and the transition to a low-carbon world is appreciable. Are trustees who are not taking account of climate change acting with the care, skill and diligence on behalf of a person to whom they feel morally bound to provide? I do not believe they are. To me, such behaviour is bordering on negligence.”

He didn’t want to hear that trustees were leaving climate change to their investment managers: “I want to hear what trustees are doing.”

His views are being echoed by other UK leaders. The Green Finance Institute was officially launched today, co-financed by the Corporation of London and the government’s business department, BEIS, which are trying to position themselves as green leaders on the global stage – along with many other jurisdictions.

The body will coordinate key initiatives and players in the space to accelerate portfolio decarbonisation and financial innovation.

The new body’s CEO, Rhian-Mari Thomas, who previously headed up green banking at Barclays and sat on the Task Force on Climate-related Financial Disclosures (TCFD), told RI that she was “really excited about the pensions piece” of the GFI’s mandate.The body announced that one of its first priorities – along with scaling up financing for energy efficient buildings, commodity production and climate-resilient infrastructure; and promoting initiatives to educate financial market participants – would be “promoting the climate resilience of UK pensions” in partnership with the UK’s Sustainable Investment and Finance Association (UKSIF) (see below).

“One of the challenges you often hear about in green finance is that climate risk is too far in the future, but pensions have absolutely the right timeframe,” said Thomas. “People will be monetising their pensions right into a climate breakdown.”

“We’ve seen best practice with things like HSBC moving its DC pension fund over to the Legal & General Future World Fund. Why isn’t that being replicated right across the FTSE?”

Part of the GFI’s role, she continued, would be to identify the obstacles to such decisions and work throughout the value chain to remove them.
“We’re starting to see a mandate coming through from asset owners and asset managers, and now we need capital markets, banks and others to provide an investable pipeline to enable that.”

The City of London has focused heavily on its role in the green bond market during previous Green Finance Weeks – despite an underwhelming level of sterling issuance and a resistance from the UK government to join the growing list of sovereign issuers.

However, Thomas told RI that the asset class “is really only a small part of what we need to do about greening the whole financial system”, highlighting the need for the GFI to look at opportunities in venture capital and infrastructure, to pull in investors with a range of risk appetites.

Meanwhile, John Glen, Economic Secretary to the Treasury, called on all listed companies and large asset owners to ramp up disclosure of climate related risks.

“I don’t want to resort to legislation straight away but I want to be clear, I do expect to see far greater uptake in the coming months across all industries”, he said.

“The government will monitor progress closely and publish an interim report by the end of next year”.

Glen said it would coordinate its efforts with the UK’s regulators.

He added: “Let’s be clear, the climate challenge poses an existential risk to the future of the planet and by extension out economy.” Today’s Green Finance Strategy document says the government “expects all listed companies and large asset owners to be disclosing in line with the TCFD recommendations by 2022”.

The Green Finance Institute and UKSIF:

UKSIF will work with the new institute on issues involving pension funds and climate change, although details are yet to be agreed, said UKSIF CEO Simon Howard. It was likely to be a “co-production” between the two groups. “It’s great to see the City moving forwards on this,” he told RI.

With reporting by Paul Verney, Ella Milburn and Khalid Azizuddin.