Pressure from all sides

by Adrienne Lawler
June 27, 2019

Adrienne Lawler

Founder at Responsible Asset Owners Global Symposium

The opportunity to learn something new every day often comes when you least expect it.

Certainly that is true for me today because in reading the profile of the latest impressive speaker to join the line up for on October 8th – Jeff Hudson of large Local Government Pension Scheme – I discovered a post from their partners (in certain areas) UNISON which read as follows:

“The interpretation of the fiduciary duties of decision makers are often confused, for example are the councilors looking after the best interests of council tax payers or of scheme members?

This contrasts with the clear duty of trustees in the private sector to comply with statute, follow scheme rules and acting in the best interests of scheme beneficiaries. This is clearly expressed in the ISS statement of the following authority; “The authority has been advised that its primary responsibility is to secure the best returns for the fund in the interests of its council taxpayers and its members. The Council has decided to take no action at this time in developing an ethical investment policy

Scheme members of the LGPS have no representative governance role in the investment decision making of the LGPS but are becoming increasingly concerned that their pension contributions are not being used to good effect in respect of reversing climate change or the rights of workers in the companies in which their fund holds shares.

In fact there is no duty or indeed no statutory guidance that suggests they should be consulted; instead the government recommends that there should be consultation with ‘interested parties’. The analysis contained in this report aims to take stock of the LGPS’ practice in the area of responsible investment and in particular, climate change. We know that there has been very little consultation between LGPS administration authorities and scheme members over the content of their Investment Strategy Statements. Climate change, executive pay, workers’ rights are among a range of social and environmental issues that UNISON members increasingly see as important factors that should be incorporated in how their savings are managed. Climate change is a real threat to the stability of the economy, society and our savings – posing short and long-term risks. These threats are now increasingly recognised by government, some asset owners and regulators.

We are now over a year on from the legal requirement for the LGPS funds to report on their response to issues such as climate change. The last 12 months has also seen approaches to responsible investment really climb up the political and investment community’s agenda. In 2017 UNISON’s national delegate conference passed a ‘divest from carbon’ motion which commits the union to support campaigns to ensure that LGPS pension funds take climate change seriously. These developments make 2019 an important time to take stock of the LGPS’ position.

Key Findings

With the exception of a small number of leaders in the field, such as the Environment Agency Pension Fund and Avon Pension Fund, most of the LGPS funds are still developing approaches to how to integrate issues such as climate change or workers’ rights into their public investment policies, some have done nothing to produce policy on Environment, Social and Governance (ESG) polices.

The new regulations have led to some changes to how LGPS funds now include ESG issues. Such as:

• Many of these funds have introduced short ‘template like’ policies, possibly indicating a lack of proper ownership of their approach to responsible investment, particularly climate change

• 49 funds over (50%) had limited disclosure of information

• Climate change has been recognised as a material risk by only 29 (32%) funds

• 10 (11%) funds referenced reducing exposure to fossil fuel investments in response to the risk associated with climate change

• 19 (21%) funds specifically outlined approaches to investing in low carbon alternatives

• Only 3 funds (2%) had progressed disclosure across the key ESG issues

• 10 funds (11%) had disclosed policy in one area of ESG

• 23 funds (26%) had started to take some steps towards disclosure

• 5 funds (5%) had no ESG disclosure at all

• 18 funds (20%) had a bespoke voting policy

• 26 funds (29%) published their voting record Proxy voting records are the only real evidence members have of how their property rights are being exercised on their behalf on issues such as runaway executive pay.

Without this policy development and active reporting members cannot see how their votes are being used something that UNISON believes needs to change.”

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