Differences emerge among European pension funds in casting climate-related ballots
The latest research reveals a significant variation in voting behaviour on climate-related proposals among European pension funds, with countries like Sweden, Denmark, the Netherlands, and the UK leading the way in this diversity.
According to the report, the UK's experience underscores the need for more stringent measures to ensure effective stewardship on climate-related issues. Despite having a strong stewardship code, the UK has struggled with climate-related disclosures and voting practices, even with TCFD (Task Force on Climate-related Financial Disclosures) reporting requirements in place for most larger UK pension funds.
Sweden, on the other hand, shows the highest level of support for climate-related proposals, followed by a mid-range position for Switzerland. However, the report notes that some Swiss funds dip closer to the midpoint, suggesting that the picture is not entirely rosy.
Denmark exhibits one of the widest spreads in voting behaviour on climate-related proposals, spanning from some of the lowest levels of alignment to the single highest score in the sample. The Netherlands and the UK occupy the lower end of the distribution, suggesting comparatively weaker backing for climate-focused proposals overall.
Key contributing factors to this variation include governance and stewardship policies, national regulatory and reporting context, investment strategies and climate targets, engagement vs divestment approaches, variation in climate risk integration, and pressure from stakeholders and market expectations.
Pension funds have diverse stewardship and voting policies driven by their governance frameworks. For instance, the Devon Pension Fund (UK) emphasizes active engagement over divestment to achieve real emissions reductions and integrates climate risk management into portfolio decisions. Meanwhile, the MMC UK Pension Fund has trustees with ultimate responsibility for governance of climate risks and has set sub-committees focusing on ESG and climate, which influence voting behaviour.
Different funds also have distinct climate action plans and carbon reduction targets. APG in the Netherlands, for example, manages large assets tied explicitly to sustainable development goals and has committed to CO2 footprinting since 2013 and detailed climate action plans to meet 2030 and 2050 targets.
The report also looked at the quality of sustainability-linked disclosures for 122 pension funds and analysed the voting practices of 42 pension funds. It derived climate scores from an analysis of 428 key proposals.
In summary, the variation in voting behaviour reflects differences in internal governance and stewardship policies, national and EU regulations, strategic approaches to sustainability and climate risk, and the balance between engagement and divestment among these pension funds. These factors are particularly nuanced in Sweden, Denmark, the Netherlands, and the UK, where regulatory expectations and investment cultures may vary but share a common focus on managing climate-related financial risks and supporting transition goals.
The UK's poor climate performance despite its strong stewardship code underscores the complexity of addressing climate-related challenges in the financial sector. The findings suggest that voluntary measures alone may not be enough to ensure broad and effective stewardship on climate-related issues, highlighting the need for more comprehensive and mandatory measures.
- The UK's poor climate performance in voting behavior, despite having a strong stewardship code, suggests the need for more comprehensive and mandatory measures in environmental-science, especially in the finance and business sectors.
- Governance and stewardship policies, such as those found in the UK's Devon Pension Fund and MMC UK Pension Fund, play a significant role in determining a pension fund's approach to climate-change matters, influencing voting behavior and climate risk management.
- Industry leaders like APG in the Netherlands, with their commitment to CO2 footprinting and detailed climate action plans, demonstrate the role of strategic investment strategies and carbon reduction targets in driving environmental-science focused proposals in the pension fund sector.
