The UK pensions sector has set out its ESG policy wish list in anticipation of a new pensions minister, but some market participants have warned against radical policy initiatives.
Guy Opperman, the country’s longest-serving pensions minister, was fired by prime minister Liz Truss as part of a reshuffle which saw many ministers booted out of their positions. His replacement has not been officially confirmed but Responsible Investor understands that Alex Burghart, who has been appointed a minister within the Department for Work and Pensions (DWP), is likely to be given the portfolio.
Whoever the new minister is, they will find many unresolved issues as they begin work. In the last year of his tenure, Opperman launched a taskforce on social investing, was investigating asset manager stewardship practices, and convened a group of 12 pension funds to look at enabling investment in the transition in emerging markets.
His replacement will also have a number of non-ESG issues demanding their attention. Phil Brown, director of policy at pension provider B&CE, said the new minister will have “a particularly full in-tray, which includes driving forward automatic enrolment, launching pensions dashboards and helping to solve the growing problem of small pots”.
UK schemes have been subject to a raft of new ESG regulations in recent years and many larger schemes are also signatories to the voluntary UK stewardship code. Some in the sector feel that it is time for a pause.
James Wintle, managing director of retirement at consultancy Willis Towers Watson, said: “In general less is more, and certainly pension schemes don’t need ever-increasing regulation. Trustees and employers need to be allowed to operate effectively in members’ and schemes’ best interests within the existing broad legal framework. But what is critical is that all possible steps are taken to mitigate, manage and adapt to climate change so that future pensioners can enjoy their well-earned retirements. Schemes can play their part in this, but leadership is needed from government too.”
This was echoed by Claire Jones, head of responsible investment at fellow consultancy LCP, who said earlier in September that changes in ESG policy should not be a priority. In due course, she said, the new minister should review how well ESG regulations are working. But in the meantime, they should support initiatives, such as the Occupational Pensions Stewardship Council, which help trustees with ESG implementation.
Market participants highlighted a number of areas where work should be continued. James Alexander, CEO of UKSIF, said the industry association would like to see more progress on the recently announced taskforce on social factors, as well as further clarification of investors’ fiduciary duties. “There is currently an absence of understanding within the industry on the extent to which ESG factors form part of these duties,” he said.
Morten Nilsson, CEO of the BT Pension Scheme, called for “onerous” ESG reporting requirements to be simplified in order to remove unnecessary duplication and deliver real-world impacts.
He also called on the DWP to “encourage and further support pension schemes to deliver on investments that will enable the transition”. UK schemes are ideal investors in infrastructure due to their natural alignment with the broader economy, but the government “needs to ensure that the right opportunities exist that are structured in the right way to suit pension schemes’ long-term investment objectives”, he added.
Olivia Mooney, responsible investment consultant and stewardship lead at Hymans Robertson, agreed. She said that the government’s continued commitment to removing barriers to investing in illiquid assets by DC schemes could make “a big difference in society” by allowing investment in renewables.
Mooney added that she was “keen” to see an update to the green finance strategy and green finance roadmap. At the same time, she noted that the current economic landscape could see pension savings cut as savers deal with the cost-of-living crisis. This could in turn lead to pensioners and future retirees heading into “pension poverty”, and so Hymans Robertson is advocating for an overhaul of auto-enrolment legislation to encourage forward planning and saving for the future as a matter of priority.
Adam Matthews, chief responsible investment officer at the Church of England Pensions Board, said that he was hoping for action on enabling investment in emerging markets transition.
Having the backing of government in ensuring pension funds can practically invest in support of the transition in emerging markets is “of importance”, he said. “Our hope is that the new minister will continue to take that work forward and be a champion for it.”
However, policy intervention isn’t essential for funds to carry out work on climate change.
“Any fund that’s trying to manage the risks that they face from climate is going to be looking at this. I’m sure there’ll be some change of priorities –there always is with new ministers and we’ll wait to see what they are, but not addressing these issues isn’t an option for us as a fund.”
“We have to do this anyway, but it’s clearly far better to do this in tandem with government”.