The Pensions Ombudsman has sided with the Shell Contributory Pension Fund in the legal challenge regarding the disclosure of climate change information, which has prompted environmental lawyers ClientEarth to request the body to review its internal procedures.
Christoph Harwood, a former Shell employee in the 1980s and 1990s, requested that the £16bn Shell Contributory Pension Fund disclose how it was dealing with the issue of climate change, given the material financial risk to investments.
After two years of unsatisfactory answers to his requests through the defined benefit fund’s internal dispute resolution procedure, he took his complaint to the Pensions Ombudsman at the end of 2018.
In its decision, deputy Pensions Ombudsman Karen Johnston says that the scheme trustees have tried to reassure Mr Harwood – referred as Mr D in the document – by “explaining that only 1 per cent of the fund’s total assets are invested in the equity of companies associated with fossil fuels”.
One pension fund has been pushed to up its game on climate management, but it is down to the regulators to make this a reality across the board
Joanne Etherton, ClientEarth
“Further, the trustee also confirmed that it considers the wider impact of climate change on investment strategy,” she adds.
Despite these assurances, Mr Harwood still requested further information from the scheme, which “goes far beyond what the trustee is required to provide within the regulations”, Ms Johnston notes.
Ombudsman procedures questioned
ClientEarth, which assisted Mr Harwood in his claim, believes the ombudsman failed in its duties by not engaging with the content of the complaint.
The decision states that Mr Harwood “did not provide any specific cases” to support his argument, while seven pages of case law and legal analysis had been included in the complaint, the environmental lawyers argue.
Joanne Etherton, pensions lawyer at ClientEarth, also questions if the ombudsman was right in saying that the trustee is not obligated to share the requested documents.
She says: “There are some specific disclosure regulations that set the minimum standards of what documents schemes must provide for their members. In our view, the disclosure regulations do not override the common law – the fact is the law says that the member can ask for other documents.
“There is meant to be a balancing exercise done by the court to weight up the interests of beneficiaries, trustees and third parties, and consider if it is appropriate for those additional documents to be disclosed. What does not appear to have happened here is that balancing exercise was carried out.”
ClientEarth is now calling on the Pensions Ombudsman to carry out a review of its internal processes, in order to evaluate how it reaches its decisions.
In response, a spokesperson at the ombudsman says that the body “is an impartial service that determines complaints on their individual facts, the law and the evidence, without favour”.
“In Mr Harwood’s case, the determination addresses a narrow point concerning the disclosure obligations; it makes no finding about the scheme’s investment policy.”
Case will not be going to High Court
The spokesperson notes that the claimant has a statutory right of appeal to the High Court if he does not agree with the decision.
Ms Etherton says: “It would be unrealistic to expect a pension scheme member to go up against one of the UK’s largest pension funds in the High Court. While this is a poorly reasoned decision, there are too many barriers related to time and costs for an appeal to be a viable option.”
Mr Harwood can also make a claim under the Pensions Ombudsman’s service complaint procedure, which investigates and responds separately to any concerns raised about its service.
The spokesperson says: “We take all service complaints seriously, and regardless of whether Mr Harwood does make a service complaint we will be conducting our own internal review.”
Shell updates climate change information
After the complaint was filed with the Pensions Ombudsman, the Shell Contributory Pension Fund updated its statement of investment principles. It now states that the scheme incorporates financial risks relating to climate change into its scenario analysis for asset liability modelling.
Despite being “somewhat encouraged” by these policy changes, Ms Etherton notes that this case “highlights the need for greater regulatory oversight of this issue”.
She says: “One pension fund has been pushed to up its game on climate management, but it is down to the regulators to make this a reality across the board.”
Trustees face tougher ESG disclosure rules from 2020
Regulations have been laid in parliament that impose tougher disclosure rules for trustees on their stewardship and engagement policies.
According to Joe Dabrowski, head of DB, LGPS and standards at the Pensions and Lifetime Savings Association, schemes “have a fiduciary duty to scheme members to take into account financially material environmental, social and governance considerations, including climate, into their investment decisions”.
He notes that the Department for Work and Pensions introduced new regulations, which came into effect in October, in which schemes have to publish more-detailed statements of investment principles, addressing financially material ESG risks, such as climate change.
Mr Dabrowski says: “We are clear that schemes should not just consider ESG regulations as a compliance exercise, but should instead focus on how they can meaningfully implement ESG and stewardship across their portfolio in a way that achieves the best long-term outcomes for members.”
