Pension funds should step up engagement on Just Transition, says Scottish Widows

Pensions and insurance giant calls on UK policymakers to create a minister for Just Transition or a Just Transition advisory committee. 

Scottish Widows will engage with investee companies to encourage them to consider the social impacts of their activity and transition plans, its head of pension investments and responsible investments told Responsible Investor.

Maria Nazarova-Doyle spoke to RI as the UK pensions and insurance giant published a new report that explores the issue of a Just Transition and urges pension funds and policymakers to take action.

“The idea has gained some momentum over the past few years,” she said. “We are increasingly discussing the issue with our asset managers and it is beginning to form part of both their and our engagement approach.

“I foresee more and more companies publishing their own Just Transition strategies and incorporating these principles into their climate action plans. As they do, momentum will gather and I hope an increasing number of companies will follow suit. I also believe the government will do more on social factors, just as we have seen on environmental factors.”

Just Transition is an umbrella term for ensuring that the benefits and costs of shifting to a low-carbon economy are distributed fairly.

As part of the report’s recommendations, Scottish Widows has called on the UK government to make Just Transition considerations a central component of its wider net-zero policy and set up direct government representation – for example, by creating a minister for Just Transition or a Just Transition advisory committee. 

The report also suggests that government and local authorities facilitate discussion of a ‘Just Transition between companies, pension funds and communities. 

This is not the first time the UK government has been called to act on the issue. 

In October, the Financing a Just Transition Alliance urged policymakers to develop Just Transition definitions and create a UK-wide Just Transition Commission to help develop investment standards that consider regional funding needs.

It also recommended that financial regulators introduce social reporting requirements for companies.   

The UK-based group is led by the London School of Economics and boasts Legal & General, Aviva Investors, Barclays, and Lloyds Banking Group – of which Scottish Widows is a subsidiary – as members. 

Scottish Widows’ report also includes recommendations on what pension funds should be doing to tackle the issue. These include making explicit reference to a Just Transition in their stewardship, engagement and voting policies, as well as incorporating quantitative or qualitative social considerations alongside the usual environmental metrics when considering potential investment opportunities or designing investment policy. 

“One of the major challenges for the pensions industry in particular is to convince the industry that the social factors linked with the Just Transition are part of their fiduciary duty,” said Nazarova-Doyle. “The industry has made a lot of progress on environmental factors, so now it’s time to also take social aspects into focus.”

She noted that measurement is also a challenge. “Social factors are notoriously difficult to measure, unlike some of the environmental factors. For factors linked to the Just Transition, there [aren’t] easily countable metrics like, for example, GHG emissions.”

Scottish Widows is already engaging with asset managers on the issue to encourage them to bring it into the centre of their voting, engagement and investment approach.

“This report shows to our managers that we believe a Just Transition is fundamental for long-term investment and societal prosperity for our pension members. We’ll use the recommendations of the report as a reference point when engaging with our managers,” said Nazarova-Doyle.

She added that, while Scottish Widows has not yet begun direct engagement with portfolio companies, the plan is to do it by sectors, “focusing on those where Just Transition issues are more prominent, eg mining and energy”.

Finally, Nazarova-Doyle said Scottish Widows will seek to align votes at AGMs with the push for a Just Transition to encourage companies to take the social factors of the energy transition into their heart of their business planning. 

Last week, Responsible Investor exclusively reported that Newton Investment Management, Ninety-One and the World Benchmarking Alliance (WBA) had put 100 oil and gas companies on notice to take the crucial first steps needed to ensure a Just Transition. 

Find out more about this topic from industry leaders at the RI Europe 2022 conference, taking place in person in London on 14-15 June.