This month in Pensions: How to manage the ESG backlash

By Gareth Jones

Across the country, the past few days have been dominated by festivities around the Queen’s Platinum Jubilee and by political turmoil in Westminster, with questions raised over the Prime Minister’s future following his less-than-emphatic victory in the vote of no confidence from Conservative MPs.
 
However, for many in the pensions industry – inflation and the cost of living undoubtedly remains the number one issue. In the past month, we’ve seen that inflation has continued to rise (7.8% in April) and is anticipated to hit 10% later this year. The Governor of the Bank of England, Andrew Bailey, made headlines in front of the Treasury Select Committee on 16^th May by describing price rises as “apocalyptic” and, despite increasing interest rates, stressed that the Bank of England remained largely “helpless” to curb inflation caused by external shocks. For savers and schemes seeing the value of their pensions and savings eroded, there are no easy answers, however, many in the industry have sought to warn those against taking rash decisions to deal with the cost of living.
 
But perhaps the other key theme of the past month has been the intensifying debate over ESG investing – as evidenced by our own media data, which shows the topic saw the greatest increase in volume of media stories over the past month. There has been a noticeable backlash against ESG in certain quarters – among both policymakers and those in the investment community.
 
A striking example of this was at a recent Financial Times Moral Money Summit, in which HSBC’s global head of responsible investing, Stuart Kirk, accused central bankers and other officials of exaggerating the financial risks of climate change and argued that investors need not worry about climate risk. His comments were seen as extremely controversial (even by HSBC itself) and many have noted that his arguments do not stand up to scrutiny (e.g. “Who cares if Miami is six metres underwater in 100 years?”), but it was also noticeable that many investment managers and others in the industry agreed with Kirk’s sentiments.
 
Another clear example of this was in the Government’s Queen’s Speech, delivered on 10^th May. This announcement contained some relevant legislation for the pensions sector, including the Financial Services and Markets Bill, the Online Safety Bill and Data Reform Bill, but it was also reported that a number of proposed ESG and climate-focused measures, such as the “sustainability disclosure requirements” were withdrawn from the Queen’s Speech by the government at late notice. While it is not clear, as yet, if the omission means that the proposals have been dropped completely, or just deprioritised -- the move has been attributed to a rightward shift in Number 10’s policy agenda, with “unconservative” reforms, including those related to climate and sustainability, being watered down or postponed.
 
While neither of these developments are likely to derail ESG reforms taking place in the industry, they can be seen as part of a wider push-back. Some of this push-back stems from a general scepticism among the pensions and investment sector that ESG-goals are not achievable, but it also stems from a growing  political and cultural opposition – particularly in the United States – to what is perceived as 'woke capitalism'
 
For pension schemes, who often find themselves in the frontline of climate and ESG-related debates, these developments may be seen as an additional communication challenge going forward.
 
If you would like any specific communications advice relating to any of these issues, do get in touch.