Shell MND elections reignite debate over selection panels

Shell’s electoral process is “inherently limiting”, campaigners say, as candidates are vetted by a panel of existing trustees before the member vote.

Elections for two trustee directors out of an eight-person board will begin on October 11 – after the panel has selected eight appropriate candidates to stand – with incumbents sitting for four years and helping to plot the fund’s investment strategy.

“It feels like this is an opportunity to get someone who is really on the ball with [responsible investment] and willing to get really involved,” says Lauren Peacock, campaign manager at ShareAction.

But concerns have been raised over the process of selecting electoral candidates.

A good pension scheme is one that not only invests responsibly, but also listens to members and takes their views into account

Lauren Peacock, ShareAction

“The problem is invariably in any selection process, I'm afraid, we are prejudiced. We have a tendency to bring forward like-thinking and like-minded people,” says Stephen Fallowell, a former RBS trustee and current Association of Member Nominated Trustees committee member.

He continues: “I'm always a bit suspicious of people who say it's an ‘objective’ process when there are individuals involved who, by their very nature – and I include myself in that – have prejudices and are subjective in the way they select.” 

Legal dispute rumbles on

The fresh elections arrive during the ongoing legal dispute between SCPF and Christoph Harwood, a former Shell employee in the 1980s and 1990s and now a partner and investment adviser at Marksman Consulting, which advises clients on transitioning to a low-carbon economy.

Mr Harwood stood to become a trustee in 2015, on a platform of his expertise in measuring climate risk, but was not chosen by the panel to go forward to the member vote. After lobbying SCPF to release its climate risk decision-making last year, which it refused, Mr Harwood filed a case with the Pensions Ombudsman.

“I applied to be a trustee of the SCPF in 2015, recognising the global shift to a lower-carbon economy as one of the key financial issues being faced by the scheme both in relation to the sponsor’s strength and portfolio management. I felt I could bring experience to the trustee board in this regard,” he tells Pensions Expert.

Mr Harwood continues: “The failure of my application and continued concern that the SCPF was not appropriately considering climate change-related financial risk led me to submit a formal complaint to the Pensions Ombudsman.”

SCPF’s electoral guidelines state that candidates must ensure “that there are no conflicts of interest in your application (for example, to promote the interests of a particular group of members or to campaign on personal matters)”.

I'm always a bit suspicious of people who say it's an ‘objective’ process when there are individuals involved who, by their very nature – and I include myself in that – have prejudices and are subjective in the way they select

Stephen Fallowell, AMNT

Mr Harwood says that, as the legal case was still ongoing, it would be inappropriate to stand for election in this round.

SCPF declined to comment.

Taking climate action

SCPF has proved receptive to correspondence from Mary Creagh, chair of the cross-party Environmental Audit Committee, urging it to consider climate-related risk, which has been discussed at board level.

“The trustee accepts that pension funds are potentially exposed to financial risks through climate change,” former SCPF chairman Clive Mather wrote to Ms Creagh in March 2018.

But the fund is yet to sign up to the Task Force on Climate-related Financial Disclosures' reporting guidelines, falling behind other large schemes such as the Universities Superannuation Scheme, the Barclays Bank UK Retirement Fund, and the HSBC Bank Pension Trust.

Mr Mather continued: “However, we also note that the [TCFD] study highlights that much of the impact on future assets will come through weaker growth and lower asset returns across the board. This suggests that investors may not be able to avoid climate-related risks by moving out of certain asset classes as a wide range of asset types could be affected.”

Ms Creagh’s committee labelled SCPF “engaged” compared with the “more engaged” ranking of USS, Barclays and HSBC.

Jo Etherton, a climate finance lawyer at ClientEarth, which is assisting Mr Harwood’s claim, says Shell must take climate risk seriously as it is doubly exposed to potential shocks in asset prices.

“Obviously for Shell, it’s not only an issue in terms of the investment of the pension fund, but of the strength of the employer covenant. It’s not only the actual investment of the scheme, but the employer who is standing behind it,” she says.

Ms Etherton adds: “All pension trustees need to take time to understand climate change risk. It is a financial matter, therefore it is one that [Shell] should be taking on board and considering it in the context of their scheme.”

Free and fair elections?

SCPF's trustee elections have reignited the debate over whether elections or selection processes deliver the best outcomes for members.

Proponents of elections argue for members’ democratic representation, whereas proponents of selection argue boards should ensure trustees have the skills to perform a complex role.

SCPF takes a hybrid route. After two rounds of interviews, the existing panel selects eight candidates to be decided via single transferable vote by more than 35,000 members.

But, according to Mr Fallowell, this process excludes candidates who might ruffle feathers. He says selection is rooted in anti-democratic traditions now banished to history.

“In the late 18th century, British parliaments were often called a “committee of landlords”. You had a situation where parliament was just made up of the same-minded people with same-minded interests. That did not bode well for democracy in this country and, of course, was eventually overthrown in the 19th century,” he says.

“It is democratisation that produces knowledge, provides diversity, and allows the members to be actively involved in one of the few decisions they make within the fund itself, particularity in the DB process.”

Ms Peacock agrees: “A good pension scheme is one that not only invests responsibly, but also listens to members and takes their views into account.”

She urges SCPF to consider whether – if the scheme is serious about the transition to low carbon – its criteria for new trustees could be tweaked to encourage a greater diversity of candidates.

“If you really want to do it well, you need people on the committee who are committed to it. If you’re not even putting that as something you want [in the criteria], then you’re not making it a priority,” Ms Peacock says.