Pressure mounts over pension body’s “misjudgment” on climate and trustee duties

Pension and Lifetime Savings Association criticised by Church of England figure

The fallout from the Pension and Lifetime Savings Association’s (PLSA) call for the term ‘climate change’ to be omitted from a planned update to trustees’ duties has continued with a senior figure within Church of England’s investment team calling it a “misjudgment”.

The PLSA, the UK’s main pensions body, which represents over 1,300 schemes with just over £1trn (€1.1trn) in assets, has caused alarm in some quarters with its response to a government consultation on clarifying and strengthening trustees’ duties.

The government had wanted to include the specific term ‘climate change’, but the PLSA argued that highlighting such an “example factor” means that trustees “might infer that this is the ‘most important’ ESG factor to consider, when other factors such as resource depletion or human rights abuses might be more relevant to their portfolio”.

“We therefore do not believe that ‘climate change’ should be included specifically in the drafting of the new regulations that could result in the regulations being unintentionally prescriptive.”

The news prompted environmental law firm ClientEarth to say that any move to backtrack on the inclusion of ‘climate change’ in the regulation would be “hugely irresponsible”, while Fiona Reynolds of the Principles for Responsible Investment called it “very unprogressive and backwards”.

Now Adam Matthews, Co-Chair of the £6trn Transition Pathway Initiative at the Church of England, has said the move is a “misjudgment” by the association, of which he is a member. And he also queried how the decision was arrived at.

He tweeted: “As a member of @ThePLSA and one of the Working Groups I am unclear how this position was arrived at and I simply don’t agree with it. Climate cuts across all these issues and this is a misjudgment by PLSA. I think it would be wise to clarify PLSA’s position.” It is understood that some other major asset owner members are unhappy with the submission too.Asked about Matthews’ tweet, the PLSA provided this statement, reproduced in full:

“As with all our consultation responses and policy positions, our response to this consultation was informed by conversations with our members and through our governance bodies. The PLSA has a number of Councils, Committees and Working Groups which feed in views on any issue which touches our members.

“We had lots of engagement, through those groups, and our member surveys, which informed our position. We are always happy to talk to any of our members about anything they’d like outside of these forums also. We recognise that there will often be a range of views which we’d expect and fully respect.

“As we state in our consultation response there is universal support for schemes taking account of the real risk that climate change poses across all industries. The PLSA wholeheartedly believes that climate change poses a substantial risk to companies in nearly every sector, as well as a risk to the stability of the financial system. It is therefore important that pension schemes consider risks related to climate change as part of their investment strategies, however this is clearly not the only ESG factor schemes will want to consider.

“In our response, we argue that including climate change specifically in the definition of ESG in the draft Regulations themselves could confuse the issue for trustees by unintentionally narrowing their focus. We believe that picking out any one factor as a specific example may lead trustees to assume that is the only, or most important, factor to consider, when others might be more relevant to their portfolio. We think that regulatory guidance is needed to set out a more comprehensive set of expectations for trustees on the range of issues they should consider, which climate change must certainly be an important part of.”