Why the PPF is taking action on climate

The Pension Protection Fund (PPF) last month co-filed a climate resolution urging energy giant Shell to align its medium-term emissions reduction targets with the Paris Climate Agreement.

The resolution was published on 16 January and marks the first time the PPF has co-filed a shareholder resolution.

Claire Curtin, head of environmental, social and corporate governance and sustainability at PPF, tells Pensions Expert that the action was taken as companies in the oil and gas sector have been pulling back on their climate transition commitments and refocusing their efforts on oil and gas production over the past 18 months. 

“We feel we should be sending a signal to company management that investors want more transparency on targets,” Curtin says.

“We have been looking at our own portfolio and prioritising the key companies that are impacting our own footprint, so we have created a ‘climate watchlist’. These are 80 or so companies that, combined, represent over 70% of our emissions footprint, so we can be much more targeted with those companies and really push them to that next step. We have been looking at Shell as part of that.”

She adds that, with a recent change of management at Shell that included Wael Sawan taking over as CEO in January 2023, there seems to have been a “step back” in the company’s climate change ambitions.

The PPF joined 27 major investors to escalate pressure on Shell to refocus on climate action. The shareholders, who manage more than €3.9trn (£3.3trn) in assets between them, have co-filed a climate resolution in collaboration activist shareholder group Follow This. The resolution requests that the oil major align its medium-term emissions reduction targets with the Paris Climate Agreement. The investors collectively own around 5% of Shell’s stock.

How to make an impact

Curtin argues that shareholders and investors must come together to hold more companies to account on their climate agenda. 

“There is not going to be one party responsible for solving climate change. You need all heads thinking together on a common solution,” she says.

She adds that the shareholders hope to inspire other pension schemes and trustees to follow suit. To do so, she says, they should not be overwhelmed by all their underlying holdings but instead start by focusing on those with the most impact on carbon emissions.

Curtin says: “We have got more than 3,000 holdings but if we can focus on a manageable number, then we can really think about challenging some of the responses, or lack of responses coming back, and holding asset managers to account and asking them what they are doing about climate change.

“We hope our action will encourage that boldness. There’s a range of different tools out there. Once you’ve got an assessment of where the fund is from a carbon perspective, the next question is what do we do about it? Do we change our holdings or do we change the way we interact with our holdings? The second choice is where we have chosen to focus – through engagement and staying invested in the companies.”

She also highlights the importance of training and raising awareness of climate change for pension schemes and trustees. 

“Training is something that should not just be ‘once and done’,” Curtin says. “This is such a complex subject and once you start lifting the lid on things, you want to understand more and more. We look to do an annual refresher on climate. You want to make sure it stays in people’s minds but also you can’t cover everything in one training session.”

Holding companies to account

This comes as more pension schemes are holding companies to account on climate change. 

The Border to Coast Pensions Partnership, which manages more than £40bn on behalf of 11 local government pension schemes, recently exercised its voting rights during the 2023 AGM season to express concern at firms’ approach to managing climate change risks.

Douglas Anderson, head of consultant relations at Federated Hermes, says pension schemes “play a key role” in addressing the climate crisis and must ensure companies they invest in are held accountable. 

Anderson adds: “Disinvestment should be a last resort. We can’t solve the climate crisis by avoiding or disinvesting from fossil fuels alone, it’s too late for that. 

“Ensuring companies that schemes invest in are held accountable to achieving their climate objectives is paramount – we need to move forward in unison if we are to solve the climate crisis. 

“Ultimately, this will benefit pension scheme members who will be investing in companies that have long term sustainable businesses.”