“Pensions Love Stranded Assets”

That’s what the PLSA are unkindly known as in ESG circles. This reputation has been enhanced during the week by their characterisation of the DWP as

“giving unprecedented new powers to Government bodies to interfere and request changes to private sector schemes’ investment strategies”.

A far more lucid assessment of the DWP’s amendment to the Pension Schemes Act arrives in John Greenwood’s opinion piece in corporate adviser

“schemes will be required to disclose their climate risk in line with the recommendations of the TCFD. It is also understood that this only expected to apply to large pension schemes at the outset. DWP is understood to have no desire to direct pension scheme investment, and believes the investment as written does not allow it to”.

For those (like me), who don’t do acronyms, TCFD’s “Task Force on Climate-related Financial Disclosures” and this is the relevant disclosure”

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The PLSA may feel that this is all a bit tough for trustees, but it’s not half as tough as watching your village disappear under water or find your village has no water at all.


Stranded assets

“Stranded assets are “assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities”. … In this context, stranded assets are also defined as an asset that has become obsolete or non-performing, but must be recorded on the balance sheet as a loss of profit.” – Wikipedia

In case anyone tries arguing the case for a passive approach to ESG, let’s remember that while trustees chose to take no action on the ESG issues in their portfolios, the rest of the planet moves on. There is no longer a passive position to take.

Pensions may love stranded assets but it’s unlikely that those who have to pick up the bill to sponsor the pensions love them half as much It’s very unlikely that a Government that takes the Paris Accord seriously , will stand idly by.

For all the posturing of the DWP’s press release , it does at least make it clear what the Department is up to.

This is what Work and Pensions Secretary, Therese Coffey said:

“Pension schemes shouldn’t be dragging their heels when it comes to their climate change strategy.

“We’ve already introduced regulations that require pension trustees to set out their policy on climate change, but now we’re taking things a step further.

“I want the UK to continue leading the way on the climate emergency defining the twenty-first century.”

This year the UK will bring together more than 30,000 delegates in Glasgow for the vital UN climate conference, COP26, where the world will meet to agree more ambitious action on climate change.

The Government has already pledged to bring all greenhouse gas emissions to net zero by 2050 and were the first major economy in the world to set that target.


Nudged by the carbon footprint?

Fiduciaries don’t need to be eco-warriors, they just need to see managing the ESG risks as part of their job. This was Government’s message to LGPS schemes last May

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Clearly that message has not got through. Legislation is now needed to make this happen

The carbon footprint disclosures may provide a nudge. They may even encourage some schemes to go beyond a bit of tilting and lower exposure to whole sectors.

Less than a year ago, the man speaking to them on climate change was local authorities minister Rishi Sunak, Ironically he was interrupted by Extinction Rebellion

9 months later Rishi Sunak is Chancellor and the PLSA are still arguing the toss.

If we left the PLSA to do their job, they’d be nudging with feather dusters.

 

 

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About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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