SUCCESSFUL lobbying to roll back governance reform within the wake of corporate failure and the watering-down of commitments on climate change are among the many challenges facing pension-fund investors, the Church of England Pensions Board has said.
A bit on the Board’s five latest “responsible investment priorities” refers to a “weakening of a norms-based approach combined with an undermining of most of the advances which have been remodeled the past a long time in sustainable investing including but not limited to confusion over ESG [Environmental, Social, and Governance — a investing approach that prioritises how companies score on these metrics].”
In his contribution to the Board’s 2024 Stewardship Report, Adam Matthews, its Chief Responsible Investment Officer, writes that “increasing trends of isolationism and protectionism, combined with a weakening of world institutions and international agreements, has meant that the worldwide rules-based system is under significant pressure”.
On Wednesday, Mr Matthews said that some governments had withdrawn support from international agreements to which the UK was a signatory, while global institutions were “increasingly seeing their funding reduced and thus limiting capability to reply to global challenges”. He observed a “weakening of the worldwide consensus on issues like climate change”, and highlighted the recent collapse of the plastics treaty (News, 22 August).
“Where there was a broad consensus on ESG, over the past years it has turn into increasingly politicised,” he said. Many diversity and inclusion efforts were “not only being questioned but rolled back”, and a few of this might be “justified attributable to over-projection and even misrepresentation by some throughout the investment community”, he said.
“However, understanding specific risks and opportunities presented by environmental, social and governance aspects stays fundamental for a long-term fiduciary investor like us. You just need to think about the difficulty of tailings dams [in the mining industry]: clear examples of the social and environmental impact of horrific disasters not only cause such pain, but in turn have also had enormously consequential financial impacts on the corporate and society. This in turn has also impacted the social license of the mining sector at a time it must expand and attract investment.”
Mining — critical to reducing carbon emissions — has been a spotlight of Mr Matthews’s work. He was recently appointed to the UN Secretary General’s panel on critical minerals. On Wednesday, he described the mining sector’s investment to upgrade tailings dams to satisfy industry standards because the clearest example of a sector changing its practice in response to investor efforts. The Pensions Board played a big part in founding the Investor Mining and Tailings Safety Initiative in 2019, now supported by £18 trillion of assets under management.
“Visiting many mine sites and seeing the completely modified responses even of among the best-run corporations on this planet has shown the impact investors can have after they work with industry, other stakeholders and bodies reminiscent of the UN to set clear expectations,” he said. “I actually have seen corporations rebuild tailings dams, relocate facilities to be in safer locations, develop emergency response plans with communities and spend money on emergency response capacities where they previously didn’t exist.”
Another challenge set out within the report concerns apparently regressive moves on corporate governance. On Wednesday, Mr Matthews said that the Board was “strongly supportive of our home market and the importance of seeing growth inside that market”, but he warned of a “consistent narrative from some parts of the finance sector searching for to weaken corporate governance requirements that had been introduced following previous financial crises or corporate failings”.
He referred to a weakening of the Corporate Governance Code and the Financial Reporting Council’s Stewardship Code. “These have all been championed alongside an unhelpful narrative that UK pension funds haven’t been sufficiently investing of their home market and that, along with the governance requirements, has meant corporations should not listing on the UK stock market.” Good governance might be a “catalyst for long-term investment within the UK economy”, he said.
The Board’s total fund stands at £3.4 billion (the biggest UK pensions fund, for universities, stands at £60 billion). But the report highlights that it is an element of coalitions of investors — a few of which it founded — and that these represent much larger sums: £60 trillion within the case of the Transition Pathway Initiative, which assesses corporations’ preparedness for the transition to a low-carbon economy.
