The Pensions and Lifetime Savings Association (PLSA) has warned investors they must hold company bosses to account on climate change risks following an update to its stewardship guidelines.
In its updated annual Stewardship Guide and Voting Guidelines, the association includes a toughened-up section on climate change and sustainability, reflecting pension schemes’ heightened focus on ESG and the growing number of climate-related resolutions tabled at AGMs.
The revised guide follows new regulations introduced in October 2019 requiring pension scheme trustees to disclose how they include financially material ESG factors and undertake stewardship in their investment decision-making.
The PLSA believes climate change is a “systemic issue” affecting nearly every industry and firm, with most companies needing to assess its impact on their strategy and business model.
See also: Pension schemes and members: Finding the common ground on ESG
The guide stipulates investors should consider voting against the re-election of the responsible director or chair if shareholders have attempted to engage climate change issues and companies have still failed to demonstrate effective Board ownership.
Re-election should also be opposed if the business is large and is not already moving towards disclosures consistent with the Taskforce for Climate Related Financial Disclosure (TCFD), Carbon Disclosure Project (CDP), Sustainability Accounting Standards Board (SASB) or another established third party framework, and smaller businesses are not readying themselves at a pace proportional to the resources available.
Other reasons include if the business has operations which are highly carbon intensive and has not provided the market with investment relevant climate, or if the company has not listened to investor concerns about any direct or indirect corporate lobbying activity whose objectives are considered to frustrate climate change mitigation.
Following findings in the recently published PLSA AGM Voting Review, which showed executive remuneration remains a major concern for shareholders, the updated Voting Guidelines also urge investors to consider executive pension contributions, which should be in line with percentages applied to the overall workforce.
The PLSA’s review of the 2019 AGM voting season found that although investors continue to express high levels of significant dissent on remuneration-related votes, this is only rarely accompanied by a vote against the Remuneration Committee Chair or the Chair of the Board.
“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 & stewardship at the PLSA, said.
“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.”