COP26: Schemes require robust support to make an impact

Yet the pensions industry must also look further afield to maximise climate outcomes and ask more of their consultants, panellists said at the Pensions with Impact discussion, held on Wednesday.

Sacha Sadan, director of environmental, social and governance at the Financial Conduct Authority, told the event that the “exponential” rise of sustainable investing within the pensions sector is akin to an “adolescent growing quickly”, and that guardrails should be in place to allow the space to grow in a positive direction.

“Our job is to make sure [we understand] who in the chain is doing what and then understand how you can measure it. Once you’ve got the measurements and if they’re consistent across industries, you will be able to start making much better investment decisions,” he said.

The other obstacle that a lot of people say is that there just aren’t the impact opportunities out there. I would disagree — my inbox is full of opportunities

Debbie Fielder, Clwyd Pension Fund

FCA launches disclosure discussion paper

His words come following the launch of the FCA’s ‘Sustainability disclosure requirements’ discussion paper, inviting industry views on potential criteria to classify and label investment products.

The regulator said that this will help consumers navigate their sustainability characteristics.

The paper forms part of the government’s “roadmap to sustainable investing”, which drew criticism from some in the pensions industry, who claimed that the plan does not go far enough to make a significant difference, Pensions Expert reported.

The FCA is also gathering feedback on supporting entity-level and product-level disclosures, and will leverage existing initiatives in the area to ensure coherence with market practice and other regulations. 

The input received will guide the regulator’s policy design ahead of a consultation on new proposals in spring 2022. 

The strategy sets out the FCA’s critical role in supporting the transition to a more sustainable economy, working with industry, listed companies and international partners. Building trust and integrity in the market for ESG products and ensuring transparency are central to the strategy, it said. 

The regulator also underscored its commitment to continue embedding ESG considerations across its functions and expanding its resources and capabilities in this area. It also laid out how it will build on its existing work to achieve the ESG outcomes in its latest business plan and keep pace with developments in this dynamic space.  

Sadan added that collaborative efforts between 29 regulators, including the FCA, are aiming to work out which metrics the global financial sector should use to mitigate the risks of greenwashing.

He said that products are being sold in the UK on weak ESG data, something that goes against the regulator’s role to protect “consumers, customers, integrity and markets”.

Consultants role questioned

Also speaking at the event, organised by the Impact Investing Institute, Debbie Fielder, deputy head of Clwyd Pension Fund, said that pension consultants could be doing more to steer schemes towards impact investing opportunities.

She said that some consultants are “a little late to the party”, but conversations around sharing opportunities have been beneficial to promoting the notion of impact investing.

“I think they should be encouraging their pension firms to invest in impact rather than the pension funds going to the consultants and saying, ‘this is what we want to do’,” Fielder noted.

“We’re lucky in that we do have a very good relationship with our consultant and they’re bringing opportunities to me, but I’m also sharing opportunities with them as well — it’s a two-way discussion.”

She stressed that the scheme benefits from a “productive committee” that is keen to invest in local opportunities, yet the “big obstacle” facing the scheme is in managing the governance requirements.

“You have got to have two hats on for that,” she said. “You can’t just go invest in your local area unless there is the financial return that you need to make.”

Yet it is within private markets that Fielder said the greatest effect can be had, as it provides a “natural evolution” into making impact-specific investments.

She said that the fund, which has been investing in impact opportunities since 2006, has not had to face many of the challenges schemes that are beginning to invest along ESG lines are now encountering, but had to provide “a lot of training” to successfully implement the approach.

This was aided by “an independent consultant who was very progressive and very ahead of the game”, but the scheme now works with a mainstream consultant.

“They know that we want to do impact and how we want to do it, and they’re bringing opportunities to us,” she said.

She added that pension funds looking to engage with impact investing should make sure they have their consultants “on board with what you want to do and to back you up”.

“The other obstacle that a lot of people say is that there just aren’t the impact opportunities out there. I would disagree — my inbox is full of opportunities,” she said.

Looking further afield

Shami Nissan, head of sustainability at investment company Actis, argued that pension funds that are looking for “impact and sustainability outcomes” should look towards emerging markets, as that is where “many of the solutions” to global environmental issues lie.

She said, in a literal sense, that “the wind blows strongest and the sun shines brightest there”, and that a wind turbine in Brazil is able to generate “three times the energy” of one in Germany, while remaining cost-competitive.

Almost half of the capital managed by the sustainable infrastructure investor comes from pension schemes, and so central to Nissan’s work is the acknowledgement of its fiduciary responsibility, she noted.

She stressed that Actis does not believe there is “any trade-off” between making sustainable investments and delivering “competitive financial returns”, and that schemes are able to leverage their active ownership role to make a real-world impact through stewardship, or “transitioning in action”.

Nissan said that the world needs more real estate, but it must be built “as efficiently and as green as possible”.

“We have other buildings where we weren’t successful in building it green at the outset, but since then we have added rooftop solar panels so that we’re greening the energy sources that are powering the building.

“There’s always something that can be done regardless of what industry or sector you’re talking about,” she added.