Leading UK pension providers are on the defensive over league tables that name and shame funds deemed to be falling short on their green credentials.
In recent years, comparison tables have been published showing the good and the bad environmental performers among pension plans. Investors have increasingly sought out this information as awareness has grown of the impact of pension investments on global warming.
The most extensive of the environmental reports, by Corporate Adviser Intelligence, in April, revealed the carbon footprint of the UK’s largest pension schemes for the first time.
The analysis found that the worst emitting scheme, SEI’s Defined Contribution pension scheme, emitted 108 tonnes of CO₂ per £1mn, four times higher than the “greenest”, the National Pensions Trust, which emitted 23.4 tonnes per £1mn.
In February, Make My Money Matter, a climate campaign group, ranked the UK’s top pension providers on their climate plans, including commitments to reaching “net zero” on carbon emissions from their portfolios. It found that only three providers — Aviva, Legal & General and Nest — had “adequate” climate plans in place.
In contrast, providers including People’s Partnership, which runs one of the UK’s largest workplace funds, SEI, and Hargreaves Lansdown were judged as having “poor” plans.
Providers named and shamed in the research took issue with the tables. “Sustainable investing is complex and cannot be distilled to a single metric,” said SEI Pensions.
“We believe that sustainability considerations must be thoughtfully considered alongside traditional investment factors in order to meaningfully improve retirement outcomes for today’s working population, and we’re proud of our consistent performance relative to our peers,” it said.
Smart Pension, which was identified as having one of the highest carbon footprints in the Corporate Adviser analysis, initially told the FT that its most recent 2023 climate report, which showed its carbon footprint had shrunk, had not been included in the Corporate Adviser report. Smart Pension later conceded it had provided Corporate Adviser with its 2022 report.
Smart Pension said: “We are confident that we are at the forefront of the industry from a sustainability perspective. Our growth fund includes allocations to green bonds, and listed biodiversity equities. We invest in companies providing climate and nature solutions and we also focus on the stewardship of companies. This is a more meaningful and impactful long-term approach to sustainability than an approach with higher exclusions, even if it results in higher emissions today.”
Hargreaves Lansdown said it did not believe the Make My Money Matter comparisons were appropriate because they were based on firm-level commitments and policies as opposed to the specific characteristics of the pension default arrangements themselves.
The People’s Partnership, provider of The People’s Pension, said the table and report published by Make My Money Matter in February was now out of date due to “significant changes we worked on over the past year.”
The provider pushback comes as The Pensions Regulator has found issues with patchy and incomplete information in climate reports that the UK’s largest funds have been required to produce each year.
Pension providers who spoke to the FT, but did not wish to be quoted, raised concerns that league tables were unfair, given there was no industry-wide standard for measuring or presenting carbon emissions data. Additionally, some investments made by funds in “climate and biodiversity solutions” tend to have higher emissions in the short term than pure index equity allocations.
“It is understandable that some pension providers are pushing back against carbon emission league tables, as these snapshots may not paint a full picture of what the provider is trying to achieve,” said Sonia Kataora, partner at independent consultancy Barnett Waddingham.
“That said,” she added, “the various league tables produced have attracted attention, and consequently have encouraged pension providers to produce clearer explanations of their approaches. This is ultimately beneficial for all.”
Meanwhile, those behind the comparison tables have vowed to continue scrutinising pension funds’ progress on climate issues.
“There is huge demand from savers and employers for sustainable pensions, yet they have no idea how green their pension is,” said Tony Burdon, chief executive of Make My Money Matter. Burdon added his annual report was “helping drive action.”
John Greenwood, editor of Corporate Adviser, said: “We are in the early days of carbon reporting, and the data provided by providers and asset managers is not perfect, as the report makes clear.
“But over time these figures will give some picture of the extent to which the financial industry is decarbonising investment portfolios and how individual companies are doing relative to peers on that journey.”
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