Investment - Articles - Response to climate and investment reporting consultation

Paul Lee, Head of Stewardship and Sustainable Investment Strategy at Redington: “We are supportive of the DWP’s proposals and believe that extending the policy recommendations made under the Occupational Pension Schemes (Climate Change and Reporting) Regulations 2021 to encompass a mandatory portfolio alignment metric will go a long way to helping trustees better understand the long-term impact of their investment decisions.

 “However, as with the introduction of any metrics, we believe that this must be accompanied by robust education around the inherent risks, to help guide decisions relating to the allocation of capital. The current suite of portfolio alignment metrics is heavily reliant on a series of assumptions and simplifications so it’s vital that these are measured and analysed within the right context in order to be truly decision-useful.

 “We also note that the definition of “portfolio alignment metric” in the Regulations makes explicit reference to “limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels”. While this might be in keeping with the industry focus on net zero, this is more stringent than the actual temperature goals of the Paris Agreement, and so some pension schemes may find themselves having to work towards aims that are detached from the likely trajectory of the real economy. This would of course need careful consideration from a fiduciary duty perspective.”

 On the DWP’s proposals to extend the range of additional metrics, Lee commented:

 “We do not fully agree with the choice of metrics included in the expanded list. Our recommendation would be that the DWP focusses on those that will be most useful from an asset owners’ perspective, rather than seeking to align with the updated cross-industry TCFD recommendations.

 “For example, we believe that carbon price and remuneration metrics are better suited to individual portfolio companies than pension scheme trustees, and that including these two metrics could distract trustees’ attention from those that will make the most meaningful difference to their decision-making.

 Redington also expressed views on the refocus of attention on implementation statements outlined in Chapter two of the proposals.
 “We welcome the decision to refocus the Implementation Statement as a tool by which the quality of stewardship practices in the investment value chain can be improved. As it stands, we don’t think they are sufficiently focused on the main issues that matter to individual schemes.

 “In our opinion, the primary constraint on improving implementation statements is the quality of reporting on stewardship matters by fund managers. Ultimately, manager reporting needs to develop to enable Implementation Statements to be genuinely tailored to the issues that matter to a scheme and its main investment exposures, so this is something we would like to see being addressed by the DWP.”

 Redington Full Response

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