Mandate withdrawal as a last resort when managers fall short of stewardship expectations.
Photo credit: investRFP.com
David Carlin reflected on strategies of asset owners and pension funds with respect to their relationship with asset managers.
What levers do pension funds have to shape policy?
The largest pension funds hold significant leverage over their asset managers. European funds have led on stewardship and disclosure, while many North American funds have pulled back, often citing legal or political constraints on ESG.
Three strategies are emerging for funds seeking to exercise more influence:
Active ownership
Strengthening oversight through revised mandate terms, climate aware manager screening, explicit policy-aligned voting and clear escalation processes.
Netherlands-based pension fund: Pensioenfonds van de Metalektro’s tightened manager selection and assessment criteria.
Netherlands-based pension fund: Pensioenfonds van de Metalektro’s tightened manager selection and assessment criteria
Mandate termination
Using mandate withdrawal as a last resort when managers fall short of stewardship expectations.The People’s Pension and Danish pension fund Akademiker Pension terminating mandates with US manager State Street.
The People’s Pension and Danish pension fund Akademiker Pension terminating mandates with US manager State Street
Reallocation or internalization
Redirecting capital to sustainability-aligned managers, or bringing asset management in-house to reduce conflicts of interest.
Dutch fund Pensioenfonds Zorg en Welzijn (PFZW) reduced its equity portfolio from 3,500 to 800 names, withdrew mandates from BlackRock.
Dutch fund Pensioenfonds Zorg en Welzijn (PFZW) reduced its equity portfolio from 3,500 to 800 names, withdrew mandates from BlackRock
Key takeaways
This is a moment of decision for pension plans which are inherently focused on the future.
- Funds ability to make climate investments and adopt targets depends on national structural and market differences and so decisions for pension plans are not made alone.
- Policymakers have a strong role to play in pension funds’ climate transition. In jurisdictions where regulatory guidance is unclear, funds are less able to act on climate change.
- The pension funds with strong scores on targets, implementation and that have adopted transition plans are also those whose portfolio allocation is shifting towards clean energy demonstrating the importance of strategy and governance.
We are living in a misaligned world. So what does that mean for pension commitments?
- Pension commitments must be adaptable as our world changes.
- Just this week, UK People’s Pension moved away from its 1.5°C-aligned portfolio target set in 2019, as global emissions are not on track to limit warming to 1.5°C and keeping a strict 1.5°C-aligned portfolio would increase risk.
- In Canada, the Ontario Teachers’ Pension Plan Board changed its climate strategy from an emission intensity target to a climate investment target, emphasizing investment in climate transition-aligned assets.
At the same time, pension plans are important pools of patient capital that can accelerate resilience and the transition. How can they be deployed that way and what signals are we seeing?
Pension funds are leveraging their asset owner-asset manager relationships to accelerate climate-aligned investments by revising mandate terms and terminating relationships with managers that are not climate-aligned.
David Carlin
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D. A. Carlin & Co helps clients navigate these transition planning through strategic briefings, practical capacity-building workshops, and regulatory reporting support. Book a call with us today (info@dacarlin.com) and find out how we can give you and your team the future-ready skills and strategies you need.
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investRFP.com – Asset Manager & Fund Selection
investRFP.com – Asset Manager & Fund Selection
