Pensions industry pushes back over new UK government guidance on ESG

New rules “unhelpful, unnecessary and undemocratic” says savings body PLSA

The pensions industry in the UK has hit back against new government proposals that it’s claimed would curb pension funds’ environmental, social and governance (ESG) policies.

The push-back has come from pensions industry body the Pensions and Lifetime Savings Association (PLSA), the former National Association of Pension Funds which represents 1,300 pension schemes with assets of around £900bn – as well as the Local Government Association, the local government body.

The government is revising how local government pension funds are managed and launched a consultation last November. Part of this is a clear signal that local authority funds pursuing “boycotts, divestments and sanctions” are inappropriate.

“While not wishing to pre-judge, we are sceptical of the merit of the forthcoming guidance stipulating how policies on environmental, social and governance factors ‘should reflect (UK Government) policy’,” the PLSA says.

It argues there are “valid reasons” for pension funds to apply a particular screening or divestment strategy inaccordance with the long-term interests and values of members. It cited the threat of consumer activism or adverse publicity, or “simply because members do not wish their savings to be invested in controversial sectors or markets”.

The PLSA branded it “unhelpful and unnecessary” for the government to hinder the flexibility of pension fund governors, going so far as to call it “undemocratic” to prevent members from placing stipulations about how their savings are invested. The association also argues that the timetable for implementation “feels tight” given that the industry is also having to grapple with investment pooling.

The Local Government Association, for its part, is concerned that the guidance “should not impair the ability of LGPS pension funds to pursue ESG appropriate to meeting their duty to maximise returns”. It is seeking assurances from the government that this will not be the effect of such guidance.
The government says it is currently analysing the feedback.