Improving fund manager climate and stewardship reporting for a pension scheme's net zero targets

LCP worked with one of the pension scheme’s primary fund managers to develop its reporting of climate data and engagement activity for their portfolio. This led to better understanding for the client and better information to support the client’s monitoring of the portfolio.

Background

Our pension scheme client holds two segregated credit portfolios that make up a large portion of its current and long-term investment strategies. Both credit managers present to the client specifically on sustainability and stewardship for the portfolio once a year.

Our initial conversations with the managers focussed on the client’s intention to set interim net zero targets for these portfolios, wanting to ensure both managers properly understood what was and wasn’t expected of them in this context.

When first presenting to the client around these targets and wider sustainability considerations, one of the credit managers struggled to convey the sustainability-related actions it was taking on behalf of the client. The client was concerned that the manager may have not clearly understood its sustainability objectives.

This served as the starting point for a long-term collaborative approach between the manager, the client’s in-house pensions team and LCP.

Our approach

LCP proactively worked with the manager, through ongoing discussions, to drive improvements in the quality of both its reporting and presentations to the client, to aid the client’s understanding of the work being done by the manager.

LCP gave feedback to the manager following its initial presentations, including the need for greater clarity on how it was supporting the client’s objectives, so that the client would have a better understanding of the manager’s approach. For subsequent presentations, LCP has reviewed the managers’ presentational material in advance and had a pre-call with the manager, to give feedback and provide additional context to agenda items. Our dialogue has delivered more efficient use of manager and client time, and ensured the key topics for discussion are understood.

LCP has also worked closely with the manager around presentation of progress against the interim net zero targets, ensuring the manager provides appropriate data for the client to understand and monitor progress. Following improvements in the manager’s ability to report (using an initial framework, as supported by LCP), the manager was able to improve reporting further by incorporating additional data sources. This was achieved through an emissions attribution tool, allowing the client to see what had driven changes in portfolio emissions over time; and by expanding the range of data sources used to assess whether issuers had set science-based targets, allowing for a more comprehensive assessment of the portfolio’s alignment.

We continue to liaise with the manager and, where necessary, the in-house team, seeking to achieve a clearer understanding of what is being reported and how reporting can continue to be improved. This allows the manager to more clearly communicate portfolio outcomes.

Working with the manager developed clearer engagement reporting that focusses on the reasons behind specific engagement activity and shows the progress of engagements carried out on the client’s behalf. This is an improvement from the previous high-level summary of engagement topics, which did not allow for any assessment of how stewardship was being used as a risk management tool.

The outcome

The client has been impressed with the improved presentations from the manager, finding them more understandable and giving the client greater confidence in the manager’s approach.

The manager is able to provide more detailed assessments of the progress towards the scheme’s interim targets as a result of enhanced data quality and reporting following our discussions.

The client better understands the engagement approach of the manager and how it is contributing to portfolio outcomes.

LCP continues to leverage its relationship with the manager to encourage further improvements to its reporting capabilities.