Long-term traders break up with asset managers over local weather threat | USAEMALL.com

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Institutional investors with $1.5tn in funds have told asset managers to step up on climate action or risk being dumped, in a sign of a split in the investment industry over how to deal with the financial risks of global warming.

A group of 26 financial institutions and pension funds from Australia to the US, including Scottish Widows, the People’s Partnership and Brunel Pension Partnership, have asked their asset managers to more actively engage with the companies they are invested in about their climate risk.

The election of Donald Trump, who has called climate change a hoax, and a pushback against so-called environmental, social and governance investing by US Republican governors, has prompted many large asset managers to back away from public support for corporate action on global warming.

But the asset owners group argued that climate change was a long-term financial risk, particularly for pension funds that would will need to pay out retirement incomes for decades to come. 

One of the largest UK workplace pensions providers with 6mn members, the People’s Partnership said it was concerned about the consequences of backtracking on climate and other sustainable investment issues.

“We are long-term investors,” said Leanne Clements, head of responsible investment at the People’s Partnership. “Ultimately the financial material arguments for climate change rise above short-term political challenges.”

“I think it is important that asset owners maintain their course throughout this difficult period and hold their fund managers accountable for delivering a robust climate stewardship strategy that ultimately delivers value for its members.”

The group has set out a series of expectations from their asset managers, which it said would be included in how they are assessed, with the threat of a downgrade or withdrawal of the funds.

Along with the threat of being dumped, the group has asked for the so-called stewardship function at the asset manager — which oversees interaction with the companies invested in — to be “appropriately resourced”.

“Poor or misaligned stewardship activity” could contribute to a downgrade in asset manager ratings, a review of the mandate or the selection of another asset manager demonstrating “greater alignment with the pension scheme’s objectives,” it said.

Asset managers also must be systematic in how they vote at shareholder meetings when it comes to climate issues. Previous research in 2023 on the voting records of big asset managers found varying degrees of “misalignment” with the client’s long-term objectives, particularly where US oil and gas investments were concerned.

Asset managers led by BlackRock have pulled back from industry coalitions on climate action, such as the Net Zero Asset Managers and Climate Action 100+, after being accused of anti-competitive behaviour.

In recent weeks, big UK pension funds, including Nest, the workplace pension scheme set up by the government, have said they are in discussions with asset managers about their exit from these industry organisations.

Faith Ward, responsible investment officer at Brunel Pension Partnership, which pools the pension assets of 10 local government schemes across the UK, said the short-term focus of asset managers meant there could be a mismatch between what fund managers did and what their clients required.

“These asset managers are managing our money on our behalf against our liabilities,” she said.

The green pensions campaign co-founded by filmmaker and activist Richard Curtis, Make My Money Matter, also said in a recent report that there was a persistent failure in the UK pensions sector to address its role in financing the climate crisis.

Climate Capital

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