Real Service Is Harder than Lip Service, Managers Find

Railpen, the U.K.’s £28 billion pension scheme for railway workers, is asking hundreds of companies in its portfolio for specific details on climate policy. It’s one of many allocators demanding more.

Davos, Switzerland (Scott Eells/Bloomberg)

Davos, Switzerland

(Scott Eells/Bloomberg)

RPMI Railpen —manager of the U.K.’s £28 billion ($38.6 billion) Railways Pension Scheme — has written to more than 200 companies in which it invests, asking them for deeper disclosures of their climate policies.

Railpen plans to center its 2018 shareholder activism on climate issues, having joined the Task Force on Climate-related Financial Disclosures last year. The TCFD promotes the use of standardized financial risk disclosures in investing.

“We believe that companies with robust corporate governance structures are more likely to achieve better long-term financial performance, and more effectively manage all of their risks and opportunities,” Leo George, Railpen’s head of sustainable ownership, said in a statement Tuesday. “This helps us to achieve our mission to pay members’ pensions securely, affordably, and sustainably.”

Railpen’s move comes months after 12 U.K. investment consultants made a public agreement to remind schemes of their duty to account for environmental, social, and governance factors in making investment decisions, as per guidance from the Pensions Regulator.

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According to Jessica Ground, global head of stewardship at Schroders, asset owners increasingly recognize that climate change may impact investment returns. But, she said, the largest pension funds are the most focused. “Signaling an intention to vote against boards who appear not to be taking the issue seriously enough is a relatively new development,” Ground said. “The past 12 months have seen climate change rise up the agenda of asset managers and owners, helped by COP 21” — the United Nations Climate Change Conference — “and the TCFD.”

Schroders has been dealing with more specific requests from clients wanting climate change risks reflected explicitly in their portfolios.

“There isn’t a single right answer,” she said. “Some clients are opting for an exclusory approach, but far more are interested in our work integrating analysis of the issue into our fundamental investment processes and engaging.”

Schroders’ competitors are fielding similar requests.

“The largest asset owners in the world now require quite detailed information, for them to process themselves, rather than just headline numbers,” Hermes Investment Management’s lead investor Eoin Murray told Institutional Investor. “That is pushing our industry to produce a swathe of more granular information. When we are looking at ESG issues — like climate — we are now drilling through to the underlying factors.” Murray added, “It is a huge amount of work.”