Investors assert importance of alignment with corporate governance: "The client's interests come first" is the clear message sent.
In the heart of Westminster, a conference brought together investors from the UK's Local Government Pension Scheme (LGPS) with asset owners and managers from across the globe. The focus? Climate stewardship and the transition to net zero.
JP Morgan Asset Management identified a significant opportunity for asset managers who stand firm on climate, as they tap into growing demand from European asset owners. This comes as the current trend shows that asset managers in Europe and the UK are increasingly committing to climate change stewardship with a focus on net zero transition goals.
The Reform UK party, with its sceptical stance on climate change, could potentially pose challenges for LGPS investors in the future. About half of the average LGPS portfolio is invested in equities, and with Reform UK politicians describing climate change as a "hoax," navigating pushbacks will be crucial.
One way to overcome these challenges is by increasingly making the financial case for investing in the energy transition. A speaker at the event expressed concern about asset managers not being rigorous in their stewardship efforts, and the focus on alpha has been harmful, taking attention away from tackling climate change at a systemic level, according to another.
The People's Pension moved £28bn out of US manager State Street, citing stewardship misalignment. This decision sent ripples across the market, highlighting the importance of alignment between asset managers and asset owners on climate issues.
Europe remains steadfast in its commitment to sustainable investing and climate transition, pushing for unified, EU-wide stewardship codes and streamlined reporting to enhance investor accountability and cross-border coordination. Key drivers include EU-level regulatory initiatives to harmonize sustainability disclosures and stewardship practices, which enhance transparency and investor commitment to climate risks and opportunities across national boundaries.
Asset managers are also focusing on integrating nature-related financial risks via participation in pioneering global initiatives like the Natural Capital Investment Alliance and adoption of standards such as the Taskforce on Nature-related Financial Disclosures (TNFD), expressing a holistic approach to climate and biodiversity stewardship.
Despite some short-term ESG fund outflows linked to geopolitical and market volatility, asset owners show persistent long-term conviction in sustainable investing. Climate resilience remains a top priority amid rising physical risks demonstrated by extreme weather events worldwide.
LAPFF, an umbrella body coordinating stewardship efforts across seven LGPS Pools, collectively manages more than £300bn in assets. They, along with other asset owners, have a huge opportunity to lead in the absence of government leadership on climate change.
A system-wide approach to tackling climate change is needed, according to one speaker. As newly elected Reform UK members sit on pension fund boards, posing potential challenges, LAPFF and other asset owners must continue to push for climate stewardship and transition pathways, navigating the uncertain geopolitical backdrop largely shaped by divergent policies abroad, especially in the US.
[1] European Commission. (2021). Sustainable finance: EU steps up action to tackle climate change. https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-steps-action-tackle-climate-change_en
[2] Financial Times. (2021). US climate policy: Biden's plan to tackle emissions. https://www.ft.com/content/55c9762a-a04f-429a-9c0c-69473054f499
[3] BlackRock. (2020). 2020 Global Sustainable Investing Survey. https://www.blackrock.com/corporate/en-us/insights/stewardship-and-governance/2020-global-sustainable-investing-survey
[4] Natural Capital Investment Alliance. (2020). Unlocking the potential of nature-based solutions. https://www.naturalcapitalinvestmentalliance.org/wp-content/uploads/2020/06/NCIA-Unlocking-the-Potential-of-Nature-Based-Solutions-Report-2020.pdf
[5] European Securities and Markets Authority. (2020). ESMA updates its guidelines on ESG disclosures for financial product manufacturers. https://www.esma.europa.eu/press-news/esma-news/esma-updates-its-guidelines-esg-disclosures-financial-product-manufacturers
- At the conference, a speaker emphasized the need for asset managers to be rigorous in their climate stewardship efforts, as they could tap into growing demand from European asset owners interested in environmental-science and the transition to net zero, following the trend of UK and European asset managers committing to climate change stewardship with a focus on net zero transition goals.
- To overcome potential challenges posed by climate-change skeptics like the Reform UK party, LGPS investors can increasingly focus on making the financial case for investing in the energy transition, aligning their contentions with asset managers on climate issues and adopting standards such as the Taskforce on Nature-related Financial Disclosures (TNFD) to demonstrate a holistic approach to climate and biodiversity stewardship.
