Gina Miller is right on this
Encouraging people to go green with their #pensions is an excellent aspiration but be very cautious @GuyOpperman
Until @TheFCA protects consumers by granting 100% transparency of holdings, acts to stop #greenwashing – this could result in mis-selling https://t.co/mBCo5CzrRn https://t.co/TToP6bZs9i
— True and Fair Campaign (@True_and_FairUK) October 6, 2020
The problems Gina and Alan identify in this presentation break down into three issues
- That “green” funds have no standard ratings from MSCI , Sustainalytics , FTSE and other rating agencies – leading to widely different ratings for companies (notoriously TESLA)
- That many funds that advertise themselves as green , have quite different filters on stock inclusion (L&G’s Future World fund is cited for its holdings in tobacco companies.
- That many funds advertising as “green” invest largely in Treasuries , claiming that Government does good things and taking no active decisions on this part of the portfolio.
Whether the end result is that consumers get confused or get into stocks they were seeking to avoid or simply underperform through lack of effective asset management, there is a common lack of transparency in how data is presented to consumers.
This excellent presentation by Alan Miller explains this in more detail
Following the presentation , it will become clear that working out what is green and what is green-washed , is beyond most investors, let alone “savers” into workplace pensions.
The scale of the problem
Currently the number of funds being actively marketed as providing enhanced ESG , social impact or socially responsible investment is small relative to the market and assets managed specifically for these purposes do not dominate the portfolios of pension funds we invest in. But that is changing and changing fast and asset and fund managers are looking to profit from this change by establishing their green credentials ahead of the pack.
People investing are looking for consistency , transparency and value for money when they place their money in the hands of others and the Government sees pension investment as a means of ensuring we get it.
Rather than leaving analysis of funds to you and me, or even our financial advisers, the DWP is looking for trustees of occupational pension schemes to take a lead and measure the assets under their management by the standards of the Task Force on Financial Related Climate Disclosures (TCFD).
That means a much more consistent, transparent and effective means of checking on whether our money is mattering. As Opperman puts it , writing in the Times
“..with trillions in assets under management, our pensions can do so much more than we think. If we can unleash the productive power of our pension funds, they can be at the forefront of seizing sustainable opportunities by financing the green-tech and green-energy revolution we need”.
What can be done to make matters better?
The adoption of TCFD reporting is no easy matter and it cannot be undertaken without substantial resourcing. This resource, the DWP reasonably conclude, comes through scale. The DWP’s plan is to ensure that small occupational schemes need to justify themselves through the value they bring to their members.
AgeWage has done some research on the value brought to members by small schemes and will be sharing this research at a forthcoming meeting. This chart summarizes.
What it shows is that while some small schemes (to the left of the red line) provide a range of outcomes , large schemes tend to provide VFM more consistently. We suspect this is because of the impact of governance which reduces the shock of high under or over performance – known as “volatility”.
Taking the luck out of the pot
Alan and Gina Miller run an organization which applies a high degree of due diligence to the funds they offer to their customers. You would expect, were the standards set by their True and Fair campaign to be applied universally, that we would eventually have a consistent, transparent and cost effective way of making our money matter.
Right now , there is an element of luck to how our pot is managed, since most of us can’t access the quality of service offered by their SCM product. We do not choose our workplace pension and we cannot choose who manages it (unless we become trustees or get onto pension governance committees ourselves).
So the best we can hope for is that those who provide oversight of our pension funds are equipped to do so. The Government are going about ensuring that standards are rising and while no-one expects the measures the DWP are taking will stop green-washing, they will at least set up a standard for pension funds against which others can be judged.
Gina Miller’s approach to this subject is right, the FCA have got to find a way to standardize reporting on retail funds. As with value for money , they should be working with the DWP on this. The retail fund market has a lot to learn from what is happening in occupational scheme governance. Let’s hope the DWP can learn from the FCA, the lessons it is learning regulating at the retail coal-face.
FCA and DWP did finally get “together” about TCFD by emails on 22 and 30 September 2020:
but this was already 5 weeks in to DWP’s very short period consultation (6 weeks in total, including weeks of extended schools holidays) on imposing TCFD reporting on pension trustees from 2021, when the FCA is only requiring fund managers to report, maybe, from 2022.
Putting the cart before the horse? But great business in prospect for the ever growing armies of ESG/SRI analysts and consultants whom Alan Miller refers to in the SCM video.
I understand the need to invest in good ESG entities but we could really do with a standard multi-dimensional scoring system. without that we’re either all guessing, or reinventing the wheel.
To add to my comment on infrastructure investment on the blog two posts ago…
What we need is a government backed compulsory CDC scheme that doesn’t need as much liquidity as a small trust backed scheme, can afford lower returns (that come with low risk infrastructure) and invests in good ESG.
As a Trustee I don’t like being told to provide good returns and VFM (DC) or fast route to full funding (DB), to enable members to transfer out quickly if they wish (ie maintain liquidity), and to invest in infrastructure projects and good ESG funds whilst simultaneously being responsible and accountable for the investment strategy and decisions.
Either government/regulator needs to mandate the investment strategy for the default fund or it wants us to make the decision as we see fit for our circumstances and membership. It can’t have it both ways.