four existing STPs<\/a> covering the waste, retail, hospitality and agrifood sectors, developed last year with industry input.<\/p>\n\u201cInvestors often assume that the strongest analysis will prevail. But you also need the right political and policy relationships to achieve positive impact.\u201d<\/p>\n
Caroline Escott, Railpen<\/p>\n
The work is shared between roughly 30 members \u2013 including the big four banks, Aviva Investors, Federated Hermes and Fidelity International \u2013 based on independent analysis and due diligence from the Center for Economic Transition Expertise (CETEx) at the London School of Economics (LSE).<\/p>\n
The NZC\u2019s 2027-29 programme could include as many as 17 consolidated finance and sector plans, including for \u201cfoundational\u201d industries, on which other sectors rely for their own decarbonisation pathways.<\/p>\n
Asset owners can shape finance plans across sectors as members of the finance subcommittee, lean into their own sector expertise by reviewing plans\u2019 heads of terms, or serve as sounding boards via regional roundtables.<\/p>\n
Skidmore expects STPs and finance plans to be revised regularly, reacting to ongoing inputs by investors, and decision-useful data feeding into sector-specific dashboards.<\/p>\n
Policy dependencies<\/p>\n
To date, climate policy engagement by UK asset owners has centred on formal consultations about disclosures needed to manage portfolio exposures to GHG emissions.<\/p>\n
According to Katharina Lindmeier, head of sustainability strategy at auto-enrolment workplace scheme Nest Pensions, this has shifted as the policy dependencies of investee firms\u2019 emissions trajectories become clearer.<\/p>\n
Nest participated in the Transition Plan Taskforce \u2013 launched in April 2022 by HM Treasury to develop an internationally applicable reporting framework \u2013 which Lindmeier describes as a \u201cgenuinely cross-sector\u201d initiative. It also set the tone for transition policy development through its operational independence from government, extensive engagement processes and academic rigour.<\/p>\n
But the scheme might take a different stance on the NZC\u2019s STP programme due to its model of outsourcing day-to-day portfolio management to external managers, directed by in-house asset class specialists.<\/p>\n
\u201cWe\u2019d see our role as being involved in a broader setting of the principles and the direction of travel, then being clear in our mandate to managers that this is something that we would like them to contribute to,\u201d says Lindmeier.<\/p>\n
While Nest includes systemic stewardship factors when monitoring the performance of asset managers, asset owners overall have been slow to mandate climate policy engagement, recent research by the LSE\u2019s Global School of Sustainability suggests.<\/p>\n
The People\u2019s Pension scheme assesses alignment of managers\u2019 industry and policy engagement activities and the extent of their role as \u201cendorsers\u201d of collaborative stewardship initiatives as part of its selection, appointment and monitoring processes.<\/p>\n
Leanne Clements, head of responsible investment at People\u2019s Partnership, the service provider to People\u2019s Pension, says industry and policy engagement should be \u201ccore\u201d to managers\u2019 climate stewardship proposition.<\/p>\n
\u201cThe more asset owner clients demand this kind of shift in resource allocation, the more likely we will achieve meaningful progress over time,\u201d she says.<\/p>\n
Jon Lukomnik, adjunct professor for impact and sustainable investing at Columbia University, argues asset owners should be bolder in their policy expectations of managers. As a baseline, the former should stipulate that the latter\u2019s lobbying should not seek outcomes at the expense of end-beneficiaries.<\/p>\n
Further, they should codify their growing need for policy engagement support from those best equipped to provide it. \u201cIn most contractual relationships, the one providing the capital has some amount of power to determine what the contract includes,\u201d says Lukomnik.<\/p>\n
In addition, asset owners\u2019 steep learning curve requires a reappraisal of strategy, tactics and resources.<\/p>\n
In a recent handbook on system-level investing, co-edited by Lukomnik, former SEC policy director Corey Klemmer noted how institutional investors tend to rely on evidence files to argue for a policy reform, while professional lobbyists will specify the text or grammar change that will deliver the outcome they seek.<\/p>\n
Few asset owners are yet ready to take up Lukomnik\u2019s recommendation to fight fire with fire, by hiring external lobbyists. But they realise their prevailing reliance on corporate stewardship teams \u2013 as reflected in a survey of current practice by thinktank Volans \u2013 leaves them outmanoeuvred.<\/p>\n
In common with peers, Railpen is boosting internal expertise by offering public policy training, recruiting staff with policy skills to its sustainable ownership team, and ensuring co-ordination on priorities across investment, external affairs and sustainability teams.<\/p>\n
\u201cInvestors often assume that the strongest analysis will prevail, but the UK listing rules debate demonstrated that evidence alone is rarely enough: you also need the right political and policy relationships to achieve positive impact,\u201d says Caroline Escott, Railpen\u2019s head of investment stewardship.<\/p>\n
She notes that a key aim of the Governance for Growth Investor Campaign is to ally soft power to hard evidence.<\/p>\n
Skin in the game<\/p>\n
Growing in-house expertise and experience will change how asset owners collaborate with each other and investor networks on climate policy engagement, with implications for inputs on transition pathways.<\/p>\n
At this nascent stage, many asset owners are taking a case-by-case approach to the initiatives they participate in. This may look unstructured, but USS\u2019s Clark says priorities should reflect unique circumstances, informed by factors including size, resource, sector and asset class exposures, ownership and structure.<\/p>\n
USS speaks regularly at events and works with academics, notably on scenario analysis. It also makes use of doors opened by its backing for government efforts to increase pension sector allocations to private markets and leverages an experienced corporate affairs team.<\/p>\n
\u201cHaving a highly skilled corporate affairs team can make a big difference in terms of the access and conversations you can have,\u201d says Clark.<\/p>\n
The scheme recently laid out its views on transition policy, noting the long-term investor\u2019s need for clarity at every stage of a multifaceted process. Beyond high-level principles, Clark says schemes\u2019 policy engagement around the transition should follow similar principles to corporate engagement priorities.<\/p>\n
\u201cSchemes need to think about where their exposure is and what might encourage them to be able to invest more. If you\u2019re investing in renewable energy and grid infrastructure, planning reform is a big consideration,\u201d she says.<\/p>\n
\u201cSchemes that own assets that rely on grid connectivity could look to influence planning policy because they\u2019re knowledgeable and have capital the government wants to attract.\u201d<\/p>\n
Individual assessments of agency, legitimacy and leverage are likely to lead to investors more frequently forming \u201ccoalitions of the willing\u201d, with groups of stakeholders coalescing around specific investment-driven objectives, perhaps determined by location, sector or asset class.<\/p>\n
\u201cThere may be a greater role now for smaller, more nimble coalitions to come together to address dedicated climate or sustainable finance policy issues that are particularly material to firms in these groups,\u201d says Oscar Warwick Thompson, head of policy and regulatory affairs at UKSIF.<\/p>\n
He notes that coalition-building on a particular issue can receive \u201cpositive recognition\u201d from policymakers.<\/p>\n
A new narrative<\/p>\n
Appreciation of the policy dependencies of long-term returns is leading asset owners to invest in climate advocacy at what Pirovska calls \u201ca time of hesitation\u201d for the net-zero transition. But they are also setting out their terms for funding the transition just as both electors and elected are noticing that the levers of government no longer work.<\/p>\n
Progress on granular decarbonisation pathways for key sectors of the UK economy has been stymied by \u201ca lack of sustained commitment by policymakers and frequent changes in government\u201d, according to UKSIF\u2019s Warwick Thompson, making it \u201cchallenging\u201d for institutional investors to engage consistently on the subject.<\/p>\n
\u201cThere may be a greater role now for smaller, more nimble coalitions to address dedicated climate or sustainable finance policy issues that are particularly material to firms in these groups.\u201d<\/p>\n
Oscar Warwick Thompson, UKSIF<\/p>\n
DESNZ has not responded to its own consultation on transition plan disclosure requirements for large corporates, while the Financial Conduct Authority (FCA) has acknowledged systemic barriers to scaling finance flows for decarbonisation.<\/p>\n
Delays and obstacles have made it harder for all parties to join the dots between short-term realities and the longer-term planning need for an orderly transition to a low-carbon economy.<\/p>\n
Skidmore wants the Burnham government to leverage STPs and their finance plans to frame a new narrative focused on affordability and growth, advising the new PM to get to grips with the opportunities of electrifications rather than getting bogged down in battles over \u201crenewables vs fossil fuel\u201d.<\/p>\n
\u201cThese are quite antiquated arguments, relative to a focus on a transition around modernising existing assets,\u201d he says, noting that decarbonisation of transport and the built environment would get the UK halfway to net zero \u2013 with scope for significant efficiency savings for consumers and businesses.<\/p>\n
While STPs are far from the only vehicle for climate policy engagement by asset owners, their five-year horizons, arm\u2019s-length relationship with government and consultative genesis give them a fighting chance of attaining broad consensus \u2013 and align with Burnham\u2019s devolution instincts by offering opportunities for transition-focused investments across regions.<\/p>\n
Mark Manning, senior visiting fellow at CETEx and former policy advisor on sustainable finance at the FCA, says STPs\u2019 integrated finance plans will also help to address asset owner concerns about the dependencies \u2013 and thus investibility \u2013 of portfolio firms\u2019 transition plans.<\/p>\n
\u201cAsset owners can use the outputs of credibly financed STPs to understand and respond to transition financing needs across the economy, assess remaining barriers to progress and benchmark the transition planning efforts of investee companies.\u201d<\/p>\n
Almost five years after the public and private sectors pledged to work together toward the net-zero transition, at COP26 in Glasgow, their investment in lobbying expertise suggests asset owners are no longer willing to leave the policymaking solely to the policymakers.<\/p>\n
\u201cInvestors recognise that achieving long-term financial outcomes also depends on the real-economy policies that shape the transition itself,\u201d says Clements.<\/p>\n","protected":false},"excerpt":{"rendered":"A severe summer drought has intensified pressures on new UK prime minister Andy Burnham, who has little time…\n","protected":false},"author":2,"featured_media":110800,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[4],"tags":[602,603,45720,45721,5,6,38244],"class_list":["post-110799","post","type-post","status-publish","format-standard","has-post-thumbnail","category-uk","tag-climate-change","tag-pension-funds","tag-policy-engagement","tag-transition-finance","tag-uk","tag-united-kingdom","tag-voting-engagement"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/117156698042954807","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/110799","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=110799"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/110799\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/110800"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=110799"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=110799"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=110799"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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