The Universities Superannuation Scheme (USS) is one of the largest occupational pension schemes in the UK, managing around £68bn ($86bn) in assets under management. USS founded the Institutional Investors Group on Climate Change (IIGCC), was a founding signatory to the UN-supported Principles for Responsible Investment and one of thirteen pension funds to co-found the Transition Pathway Initiative in 2017.
The scheme’s investment mandate commits it to integrate material environmental, social and governance (ESG) considerations such as climate risk into their investment processes and to apply them across all asset classes. As a long-term investor their team of five responsible investment professionals are, amongst other ESG activities, tasked with assessing corporate climate performance. David Russell, the USS Head of Responsible Investment, says that TPI’s research is a tool that helps them identify those companies lagging in their management of the climate transition, helping manage this risk and thus potentially improving financial returns for their members and beneficiaries.
The USS UK Voting Policy was updated in 2019 to integrate TPI data into voting decisions.
“We find TPI data especially helpful in our voting and engagement activities” explains Russell, “And we updated our UK Voting Policy in 2019 to integrate TPI data into voting decisions”. In practice this means that TPI’s Management Quality scores have been adopted by USS as a standard by which to judge the quality of climate governance for investee companies across the world.
Russell elaborates, “We encourage portfolio companies with weak performance to enhance their corporate disclosure by responding to TPI’s information requests. And from this year (2020) we have started to vote against or abstain on the resolution to receive the report and accounts where companies have the poorest management quality score, as assessed by the TPI. We also plan to ratchet this up in following years”.
Russell adds that the pension scheme also reserves the right to escalate the vote against the Chairman of the Board, and/or the Chair of any appropriate committees, in case there is no resolution to receive the accounts.
There have been several practical examples of how USS has engaged with companies using TPI data in the last year. For example, both Formosa Plastics, a Taiwanese chemical company, and US Utility Company Duke Energy were ranked as TPI Level 2 (Building Capacity) in 2019. This was a factor in the USS team deciding to request additional up-to-date environmental and social reporting from those companies in a voting and engagement letter.
Similarly, TPI Management Quality data helped USS to engage with Anhui Conch a cement company based in Wuhu, China that ranked as TPI Level 1 (Acknowledging Climate Change as a Business Issue). “In the case of Anhui, the company operates in emerging markets and TPI analysis helped us assess the extent of the gap in disclosure between the company and its developed market peers.” explains Russell.