Described by the Department for Work and Pensions, as a “landmark moment and the biggest shake up in pensions for decades”, the Pensions Schemes Bill has eventually received Royal Assent on February 11th 2021. We now have the Pensions Scheme Act 2021 with three major developments. Importantly, occupational pension schemes “will be required to manage the effects of climate change as a financial risk and to report on how they have done so”. What does this mean for the pensions of employers and individuals ? As well as addressing the financial risk, will the act help to slow down the pace of climate change?
Professional Pensions report the announcement from Scottish Widows that they are working with their fund partners to begin the process of divesting at least £440 million from companies that do not meet its ESG standards. It is starting with assets that pose the highest risk, companies that invest more that 10% of their revenues from thermal coal and tar sands.
This does leave us wondering if there are companies who receive under 10% of their revenues from thermal coal and tar sands that should also be included in the divestment process. LGT Vestra, the discretionary fund manager divested their own funds in full, from thermal coal, in January 2020 to support an energy supply that is consistent with the Paris agreement.
Whilst it might not be enough for some investors, it is interesting that Maria Nazarova-Doyle, head of pension investments for Scottish Widows uses the term "shielding customers from ESG investment risks". By that it is assumed not only the risk of investing in companies that are creating harm but also companies which could experience a rapid asset price correction as other concerned investors pull out, leaving these assets "stranded" with little value. Professional Pensions continues to report her additional comments, "We recognise there's more we can do as a company and that this is just one step in the journey," she added. "Our exclusions focus on companies we believe pose the most severe investment risk due to the nature of their businesses, which can't be addressed through engagement."
Scottish Widows will extend this policy across their life, pension, OEIC investment funds as well as their default workplace pension funds.
Article by Hope William Smith for Professional Pensions can be sourced here
Blogs are on themes of ethical and sustainable investing and the often overlooked risks to investors of climate risk and the wider environmental, social and governance issues of companies in which trillions of our savings and pension money are invested.