A Louder Voice 

Industry-led solutions rather than forced consolidation will give UK pensions greater climate clout, says Trustee Sustainability Working Group Chair Bobby Riddaway. 

Last year, the British government floated the idea of consolidating the country’s defined contribution (DC) pension fund market. Rachel Reeves used her first annual address as Chancellor of the Exchequer to explain how this could help ease administrative overheads for smaller schemes. 

Scaling up pension funds means that their capital could be put to better use, supporting new business ventures and helping to meet the country’s infrastructure needs, said Reeves. It could also help them play a more significant role in the country’s green transition. 

“We come into 2025 with massive items on trustee agendas, which have nothing to do with climate change,” said Bobby Riddaway, Chair of the Trustee Sustainability Working Group (TSWG). 

Such issues include the introduction of new pension dashboards, a new investment funding code for defined benefit (DB) pensions and new governance requirements. 

On top of this, since 2021 schemes of a certain size – with AUM of at least £500 million (US$448 million) – have been required to disclose their climate-related risks under the Task Force on Climate-related Financial Disclosures (TCFD) framework. This is something that Riddaway would like to see scrapped, arguing that it adds no real value other than as “a box-ticking exercise”. 

The TSWG was set up at the end of last year to help cut through all this noise and make sure that climate change is kept squarely on the agenda of pension funds, even if other priorities are pulling them in different directions. 

“I felt that we needed a really powerful trustee group. Not one that blows hot and cold, but one that stands up and says: ‘this is why you need to be thinking about climate change’,” said Riddaway. “There wasn’t a group with the same depth and breadth in place before. We’ve got people that work on the bigger schemes out there and then we’ve got people like me, who work more on the micro-schemes.” 

The TSWG comprises a total of 13 trustees, covering both big and small schemes. Riddaway himself has spent the past year setting up a new independent trustee firm, HS Trustees, which is currently building up its portfolio of clients. 

Not a panacea 

Despite the significant overheads that many pension funds face, Riddaway is sceptical about the extent to which it will be possible to consolidate the country’s many diverse schemes. A consultation on pension fund consolidation concluded in January and the government is now considering next steps. 

The government is principally targeting Local Government Pension Scheme (LGPS) funds and DC schemes, leaving out private sector DB schemes, which manage an estimated £1.4 trillion of assets, unaffected. 

“If you want to know how hard it is to consolidate a DB pension, go to any medium-sized scheme and see how many ‘sections’ it has got,” said Riddaway. 

Pension schemes may have multiple ‘sections’ if companies offer different levels of benefit for different classes of employee, or if multiple schemes have merged, which often happens through company acquisitions. 

“The only reason these schemes still have multiple sections is because it’s too costly and too hard to simplify the benefits so that there is only one,” said Riddaway. 

It would also be very costly for many smaller trust-based DC schemes to consolidate, said Riddaway. This could leave thousands of British pension schemes unable to scale up in quite the way that the government would like. 

Even if the right legislative framework is put in place to allow schemes to consolidate, arguments could persist for years about whether the costs of consolidation is really in the best interest of members. 

“I’m all about practical solutions, helping the big schemes steer their ship and giving the smaller ones some teeth,” said Riddaway. “Keeping climate at the top of the agenda means coming up with industry solutions that can be implemented.” 

Better stewardship 

While the larger pension schemes are used to throwing their weight around at AGMs, pushing for climate disclosures or actions via shareholder resolutions, smaller funds often find it very difficult to get their voice heard. 

“The big schemes have been doing stewardship for a number of years. All they need to do is make sure that this is hitting the mark on climate. Many of the medium-sized schemes probably introduced stewardship plans because of climate and ESG regulations. As for the smaller schemes – well, we have already talked about the fact that they can’t really do what they need to do,” said Riddaway. 

With consolidation off the table for many of these schemes, Riddaway wants to find a workable solution to strengthen stewardship within the sector. 

“If they came together to use their voice on one or two key issues a year, this would put pressure on fund managers to all vote the same way,” said Riddaway. 

He admits that the TSWG is in the early stages of identifying a practical way of bringing thousands of funds together under a single umbrella in order to speak on the same issues, but he insists that the right mechanism can be set up. 

“This may involve looking at what the big schemes are already doing and asking them to select two or three issues that they would like to see the smaller schemes get behind as well,” said Riddaway. 

He added that between 2,000 and 2,500 smaller pension schemes could be covered by this initiative. 

Adding value 

Encouraging smaller schemes to develop their stewardship activities is part of the TSWG’s effort to support pension funds in making a meaningful difference to the climate agenda, rather than simply working through a checklist to please the regulators. 

To this end, Riddaway insists that TCFD reporting requirements for pension funds must go. 

“If you look at those pension schemes that are spending a lot of time on climate change, what they’re actually doing is spending 95% of the time producing TCFD reports,” said Riddaway. “Our priorities are quite clear. We want TCFD reports to be abolished and transition plans to be put in their place. Pension schemes would then report on their transition ever year, but with no detailed data requirements.” 

This would give pension schemes valuable “levers” they could use for de-risking and supporting the fight against climate change, said Riddaway. 

“Ultimately we need to move from reporting to action on climate,” said Riddaway. “If we can get this reporting reduced, then hopefully they can play more of a role in advocacy and raising issues that adds real value towards fighting climate change.” 

Pension schemes may also be persuaded to adopt transition plans in other areas, not just for the climate transition, said Riddaway. 

“They could eventually be extended to cover biodiversity, nature and social factors as well, when the regulators decided they want to cover these,” said Riddaway. 

Last year, the UK’s Transition Plan Taskforce published its final report, in which it recommended including other elements besides climate in transition plans. 

Riddaway said that the TSWG has been making some headway in this area, and have been engaging with the regulators as well as the Department of Work and Pensions. 

“We’ve got the ear of the regulators now, and we will carry on engaging with them. We can’t count any chickens just yet, but reducing the reporting burden is definitely on their agenda,” said Riddaway. 

Easing reporting requirements is only one side of the equation, however. Riddaway argues that the government still needs to create a more conducive environment for pension schemes to operate in – and here it seems to be falling short. 

“There is a significant group of trustees who don’t feel comfortable investing in sustainability assets without firm proof that this also brings financial benefits to its members,” said Riddaway.  

“Initially I thought that this fiduciary duty conversation was a bit of a red herring, but I’ve since come to the conclusion that enough people use this as an excuse or are uncomfortable that we probably could do with a change in the law on this.” 

The UK government is currently considering an amendment to the pensions legislation that would prevent fiduciary duty from being used as an excuse for inaction. According to pensions minister Torsten Bell, the Pensions Scheme Bill will be put before Parliament before the summer recess in July. 

Here, too, the TSWG will need to get policymakers and regulators on side. 

“Pension schemes can play a significant part here, but they’re not responsible for climate change,” said Riddaway. “The overall ESG strategy must sit with policymakers, and this is where things have been lacking a bit.” 

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