Hundreds of pension funds and asset managers could lose their Principles for Responsible Investment (PRI) signatory status in plans to cut down on "greenwashing".
The PRI argued that many of the 200 or so asset managers and schemes that have signed up to the United Nations-backed principles on tackling environmental, social and governance (ESG) issues pay little more than lip service to them.
Now they will be faced with a new set of standards to prove they are making active efforts to effect change, or they risk being removed from the PRI's official list of signatories.
Signatories of the PRI commit to six principles, which include incorporating ESG issues into investment analysis and decision-making processes among others.
Speaking at the Global Invest Forum in Paris on 12 October, PRI managing director Fiona Reynolds said the current process was not enough to ensure good performance on ESG issues.
"If you are a PRI signatory, you have to report on an annual basis, and that report is made public," she said. "When the PRI was first established, we thought that the public reporting was enough to keep investors onside.
"But it is not enough. There are still members that joined so they can say they are a member. They are using us for greenwashing which we don't appreciate.
"We are bringing in new standards that they will have to meet to be a signatory. At the moment, 200 of our signatories don't meet those standards. We are working with them, giving them two years. We hope that it doesn't take that long."
She added there was still "a lot of confusion about responsible investment".
"They think it is about giving up returns so you can go and invest in some social good," she continued. "It is about how do you do more detailed financial analysis with a longer term view. How can you be a better investor? How can you think about it more holistically?
"That point is often missed by people who sometimes dismiss these issues into the do-gooder, tree-hugger category".
Around 1,800 firms are named as PRI signatories, with 46 asset owners, 175 investment managers, and 39 service providers based in the UK.
PRI signatories include the Transport for London Pension Fund, the Lancashire County Pension Fund, the Kent County Council Superannuation Fund, Man Group, and Majedie Asset Management, although there is no suggestion they are accused of greenwashing.
Speaking separately to PP, ShareAction head of research Toby Belsom commented said asset owners, including pension funds, should be challenging their managers on ESG activities.
"Greenwashing is a real issue that needs exposure at a number of levels and we welcome PRI's approach to reviewing signatories," he said. "One way to do this might be to look at how pension funds and their asset managers voted on issues which threaten the security of savers' retirement pots in the future.
"Our recent analysis shows an inconsistent approach to climate change resolutions and limited transparency on engagement with high-carbon companies. Asset owners should be challenging their managers where they fail to vote in their clients' best interest.
"There is also an issue around the marketing of green equity: institutional investors like pension funds need to ensure that the implementation of UNPRI principles lies with the decision-makers not the public relations departments."
Legal and General Retirement (LGR) has committed to cutting the carbon emission intensity of its annuity book by half by 2030, while the overall group targets a net-zero portfolio by 2050.
More than £1.75bn has been wiped from the pension funds of councils across the UK after three years of crashing oil investments, research shows.
Phoenix Group has committed to its operations being net-zero by 2025, and its investment portfolio being net-zero by 2050.
Jess Williams looks at how schemes can build and manage change via investment-only platforms.
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