Government Minister outlines how UK can become the leader in ESG investing

By Gareth Jones

New ESG and climate change reporting requirements could provide a massive opportunity for the UK’s post-Brexit investment management industry and help pension funds manage their long-term risks better, according to the government.  

Today, Newgate Communications hosted the Minister for Pensions, Guy Opperman MP, at a virtual roundtable event with some of the UK’s largest pension schemes and asset managers for a discussion on how investors should consider climate change & ESG factors in their approaches. It was a highly topical discussion, given recent policy developments. 

Over the past two years, there has been considerable progress on the issue of green finance.  Last year, the UK legislated to reach net zero greenhouse gas emissions by 2050 and became the first major economy to do so. It also placed new ESG reporting requirements on pension scheme trustees. This year, the government has tabled new legislation that would require pension trustees to take climate change into account when managing their pension schemes assets and investments.

These proposals, which the government expect to become law by the end of the year, will mean that pension trustees will be required to report against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) – an international framework, originally established by Mark Carney and Michael Bloomberg, which has been designed to establish the metrics by which companies calculate their exposure to climate risk and disclose it to investors. Last month, the government published a consultation on how these requirements will work and has invited responses from the industry.

Today’s roundtable discussion picked up on some of the issues and challenges of implementing these proposals. Some pension trustees expressed concern about the administrative burden of these new reporting rules. These new requirements represent another set of responsibilities placed on pension trustees, who already operate within a highly regulated environment and with a fiduciary duty to deliver the best outcomes for their members. In practical terms, they will mean that pension trustees may have to adapt their investment strategies, how they work with consultants and asset managers and how they report and communicate with their members. The Minister noted, however, that climate change is an issue where all parts of the economy must act and once these new rules are in place, there will be a degree of regulatory certainty for the sector. 

For UK asset managers, the Minister stressed that these new requirements will provide a massive opportunity for them to gain a competitive edge. As ESG becomes more mainstream and as TCFD standards are increasingly seen as the global standard for measuring climate risks among investors – this new framework will provide an opportunity for asset managers who can actively manage a portfolio and promote their ability to manage climate-related risks and identify opportunities as we transition to a low carbon economy. 

It was noted that this is an issue where the UK can become a world leader. After all, while the current President of the United States remains not particularly focused on the long-term implications of climate change, the UK can get ahead of the curve on ESG and sustainable investing by setting the long-term legislative and regulatory framework.