Joining the dots: the conversation is changing on ESG and responsible investment in the United Kingdom

From May 10-14, the RI United Kingdom conference points the spotlight on the £2.5trn pension fund market

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Today marks the start of RI United Kingdom 2021 – part of our Country Spotlight conference series on responsible investment in Europe’s biggest institutional markets. It follows our recent Netherlands and Switzerland events, and they all lead up to our flagship RI Europe conference in June, which will focus on the EU Green Deal and Sustainable Finance Action Plan.

There’s certainly a lot happening in the UK right now and the pace of developments means that now is a great time to take stock. In the past few days alone, the Financial Conduct Authority has confirmed it will consult on new TCFD reporting requirements for pension schemes and other investors, and the Bank of England said it would reveal plans for 'greening' its bond purchasing programme by the end of May. 

The UK’s new Nationally Determined Contribution (NDC) under the Paris Agreement to the United Nations Framework Convention on Climate Change, released in December last year, commits the country to reducing economy-wide greenhouse gas emissions by at least 68% by 2030, compared to 1990 levels. 

And the UK has announced a 10-point plan for greening its economy as it prepares to host COP26 in 2021, which is still set to go ahead (as at the time of writing).

Indeed, it is the COP which is driving much of the government’s activity in the UK pensions market.

More than 1,300 UK pension funds running assets of circa £1trn (€1.1trn) are already responding to the Financial Reporting Council’s new UK Stewardship Code 2020. The new code has been significantly beefed up and is much more stretching than before. The UK pioneered Stewardship Codes back in 2010 and the new version will be closely watched around the world.

Additionally, new legislation in the Pension Schemes Act will likely introduce mandatory climate risk governance and TCFD reporting for pension schemes, and trustees are already having to focus on environmental, social and governance (ESG) issues under recent regulatory guidance from the government's Department for Work and Pensions (DWP).

So it is fitting that the conference will feature Guy Opperman, Parliamentary Under-Secretary of State at the Department for Work and Pensions, in a session looking at policy and regulatory requirements for pension funds. It’s unusual to have a front line minister as a panellist so please do take the opportunity to put some tough questions to him! 

As Catherine Howarth, CEO of ShareAction, says, the recent regulatory push by the government has “changed the conversation” about responsible investment in the UK. 

The government has also suggested mandatory net-zero targets for financial institutions to ensure climate targets will be met. One of the investors that has made a net zero commitment is the BT Pension Scheme and its CEO, Morten Nilsson is among the speakers on Plenary 2.

Most pension funds in the UK lack vast resources and the market is consequently reliant to a large extent on investment consultants and external asset managers.

But the UK remains one of the largest centres of investment management in the world. It is second only to the US and is the largest centre in Europe, where it is responsible for 37% of total assets under management.

As of 2019, pension fund investments in the UK amounted to more than £2.5trn, according to trade body the Investment Association. The total assets under management of IA firms amounts to £8.5trn.

As the investment Association says “responsible investment is no longer a special product, or even an option”. “It’s a necessity, which our member firms deliver in a diverse and ever-evolving way.”

Despite Brexit, UK investors will still need to get their grapple with the incoming EU Sustainable Finance Disclosure Regulation (SFDR) and green Taxonomy and these are the focus of a session at the event.

PS. If you missed any of the excellent sessions at the recent RI Netherlands and RI Switzerland conferences, you can catch them on replay here and here.