The Church of England Pensions Board and Swedish pension fund AP7 have written to 55 large companies on their approach to climate lobbying, as government and regulators take action on Environmental Audit Committee recommendations to improve pension fund governance.
Led by the Church of England Pensions Board and Swedish national pension fund giant AP7, the group targeted the companies due to their significant role in energy intensive sectors, as well as their high greenhouse gas emissions.
Companies listen to their major investors – and they pay attention to their concerns
Sophie Marjanac, ClientEarth
The selected companies received the lowest scores in their sectors on their overall position on climate policy and the extent of their influence on policymakers, according to an InfluenceMap assessment. They include BMW Group, Bayer, Unilever, Glencore International, Royal Dutch Shell, Airbus Group, and National Grid.
The investors, including asset manager Robeco, have asked each company to review relationships with key trade associations and lobbying organisations, to ensure alignment with their formal company positions supporting implementation of the Paris climate agreement.
The move comes following a leaked document, which suggested that BusinessEurope – a large confederation representing trade bodies across the EU, was planning to oppose greater EU ambition on climate policy.
In October, an Intergovernmental Panel on Climate Change report warned that the world is on course for 3°C of global warming.
Legal and reputational risks
Each of the 55 companies has also received a set of ‘investor expectations’ supported by the Church of England Pensions Board, AP7 and the Institutional Investors Group on Climate Change.
The letter to each company asks them to make sure their lobbying practices align with their investor expectations document, and “that you are transparent about your own policy positions and how you ensure these are implemented in your direct and indirect lobbying activities”.
“If a company has a climate-positive outward position and is simultaneously lobbying for obstructive climate policies, this is deeply hypocritical – and not only this, this kind of misalignment exposes them to legal and reputational risks,” said Sophie Marjanac, climate lawyer at ClientEarth.
She added that governments “will not be able to make the policies required to implement their national emissions reduction commitments under the Paris agreement if they are lobbied by powerful fossil fuel interests”.
The 55 companies that the pension funds have written to come from the transportation, oil and gas, utilities, mining and metals, food, beverage and industrials, chemicals and auto sectors.
“Companies listen to their major investors – and they pay attention to their concerns," said Marjanac, adding that this campaign is showing that investors are serious about climate action.
Schemes should actively engage
Stuart O’Brien, partner at law firm Sackers, said that for trustees, the move is a “good example… of what can be done without necessarily changing your underlying investment strategy, or your underlying approach, but what can be done by active engagement with the underlying companies”.
Smaller pension funds should not be daunted by the size of the schemes that are more active in this space, according to O’Brien.
"They can certainly ask their managers whether they are supporting these sorts of initiatives through their voting and engagement strategies, and that’s quite an easy win for a smaller scheme”, he noted.
Caroline Escott, the Pensions and Lifetime Savings Association’s policy lead on investment and stewardship, agreed that recognition of environmental, social and governance factors – such as climate risk – has increased among institutional investors when it comes to their investment approaches.
“Schemes – together with their advisers and managers – should consider in their analysis whether a company takes a coherent approach to managing the risk climate change poses to its business model,” she said.
Climate-related financial disclosures not compulsory
It has been a busy year for regulatory change relating to ESG investing. Most recently, the EAC has published the government response to its Greening Finance report on embedding sustainability in financial decision making.
The government and regulators have taken action on the EAC’s recommendations to improve pension fund governance. However, it has not made climate-related financial disclosures mandatory.
“It is disappointing that the government has not used this opportunity to follow France in making it mandatory for large companies and asset owners to report their exposure to climate change risks and opportunities,” said committee chair, Mary Creagh, in a statement.
“The comment on trustees perhaps doing more to report their exposure to climate change risks and opportunities is interesting,” said O’Brien, noting that trustees as asset owners have struggled with Task Force on Climate-related Financial Disclosures reporting to date.
The TCFD recommendations cover governance, strategy, risk management and metrics/targets.
While the last one relies on data that trustees may have struggled in practice to get from all their managers, “the first three aspects are descriptive and are actually quite well aligned with the requirements in the recently published Occupational Pension Schemes (Governance) (Amendment) Regulations 2018”, said O’Brien.
He added that, even if trustees are resistant to full TCFD reporting, “they may find it beneficial to at least engage with the first three items as part of their operation of an effective system of trustee governance”.
