In its updated annual stewardship and voting guide, the UK’s Pensions and Lifetime Savings Association (PLSA), whose members are responsible for approximately £1 trillion ($1.28 trillion) in pension assets, said plan investors need to hold the directors of the companies they invest in accountable for the way they manage climate change risks.
The guidelines are intended to be a resource to provide pension trustees with practical guidance when considering how to exercise their votes at annual general meetings. The PLSA said the guide is particularly relevant this year because of new regulations introduced in October that require trustees to disclose how they include financially material environmental, social, and governance (ESG) factors in their investment decisions.
“Recent years have brought in a new regulatory regime on stewardship and growing stakeholder interest in, and scrutiny of, how pension scheme investors are holding companies and management to account on financially material environmental, social and governance (ESG) issues,” the guide says. “There is a growing body of evidence to demonstrate that active and engaged shareholders can have a positive impact on corporate performance.”
The guide also includes a section on climate change and sustainability, reflecting pension plans’ increased focus on ESG and the growing number of climate-related resolutions at companies’ annual general meetings. The PLSA said it believes climate change is a “systemic issue” that affects nearly every industry and firm. It said that, while climate change will impact some sectors more than others, it is likely that most companies will need to assess its effect on their strategy and business model.
The PLSA said pension plan investors must have a “clear, consistent, and effective” approach to stewardship so that they can hold companies and their asset managers and service providers to account on the issues that matter to them.
The updated guidance offers a step-by-step checklist and summarizes voting recommendations on issues such as executive remuneration, audits, company leadership, and dividend policy.
According to the guide, investors should consider voting against the re-election of a company’s director or chair if:
Shareholders’ attempts to engage companies have not led to a company demonstrating effective board ownership, such as providing a detailed risk assessment and response to the effect of climate change on the business.
The business is large, and is not already moving toward disclosures consistent with established frameworks such as the Task Force on Climate-Related Financial Disclosure (TCFD), the CDP (formerly the Carbon Disclosure Project), or the Sustainability Accounting Standards Board (SASB).
A company has operations that are highly carbon intensive and has not made sufficient progress in providing the market with climate disclosures including committing to publish science-based targets.
A company has not listened to investor concerns about any direct or indirect corporate lobbying activity whose objectives are considered to counter climate change mitigation.
A company has not responded appropriately to the result of a climate change related resolution, whether binding or not, and whether it was actually passed or not.
“Pension schemes hold key stakes in FTSE 350 companies and it’s right that they use their influence as owners to encourage companies to behave responsibly,”
Caroline Escott, policy lead investment and stewardship of the PLSA, said in a statement. “Issues like climate change and executive pay are important for investors as they can significantly influence corporate success and hence the value of individuals’ savings.”