The People’s Pension, one of the UK’s largest defined contribution (DC) master trusts, has significantly reduced its investments with State Street, citing climate stewardship misalignment as a key factor. This decision signals a growing divide between long-term investors and major asset managers on addressing climate change.
With over £30bn in assets, The People’s Pension had previously invested the majority of its funds in pooled arrangements with State Street. However, in a shift to gain more control and flexibility, the master trust has reallocated £28bn to segregated mandates with Northern Trust. The new allocation includes significant mandates with Amundi and Invesco, further distancing the trust from State Street, which has faced scrutiny for its climate-related actions.
The move to segregated mandates is part of a broader strategy overhaul by The People’s Pension, driven by the desire for deeper engagement with a small number of asset managers. According to Chief Investment Officer (CIO) Dan Mikulskis, this shift allows for more customized mandates and improved alignment with the trust’s long-term goals. While Mikulskis avoids direct criticism of State Street, the decision reflects increasing tensions between the asset manager and the trust on climate stewardship.
Misalignment on Climate Stewardship
Leanne Clements, Head of Responsible Investment at The People’s Pension, confirmed that the pension fund had raised concerns with State Street over its climate-related actions. Despite ongoing engagement, including a recent joint initiative with other asset owners urging managers to uphold their climate commitments, State Street’s lack of sufficient climate action ultimately led to this significant change.
State Street’s departure from the Climate Action 100+ (CA100+) initiative in early 2024 further amplified concerns. ShareAction’s latest report on voting behavior found State Street’s support for environmental and social resolutions had dropped dramatically, from 30% in 2021 to just 9% in 2024.
Clements noted that the shift was not solely triggered by this departure but was part of a wider evaluation of State Street’s climate stewardship approach, which led to a decision to move assets elsewhere. The pension fund’s newly launched responsible investment strategy in May 2024 warned that managers failing to commit to climate action could risk losing their business.
A Strategy for the Future
As part of its future strategy, The People’s Pension has selected Amundi to manage its £20bn passive equities portfolio and Invesco to oversee more than £8bn in active fixed-income investments. Amundi, ranked 6th out of 70 in ShareAction’s Voting Matters report, was chosen for its stronger alignment with responsible investment objectives.
This marks a pivotal moment for The People’s Pension, which aims to grow to £50bn in assets over the next five years, potentially reaching £100bn in the next decade. Mikulskis emphasizes that these decisions will play a significant role in the fund’s trajectory, aligning its investment approach with its climate goals.
Despite its relatively slow start in terms of net-zero commitments compared to peers, The People’s Pension has been making strides, with plans to allocate £4bn to private markets by 2030. However, Mikulskis notes that the priority remains aligning the vast majority of its investments in listed markets with the fund’s climate strategy.
Segregated Mandates: A New Era of Control
The transition to segregated mandates provides The People’s Pension with more control over its investments, allowing for greater flexibility in responding to climate issues. Mikulskis explained that pooled funds are ideal for smaller schemes but that as the trust has grown, segregated mandates offer better value and control, enabling more tailored investment strategies. This shift also improves voting power on shareholder resolutions, a key factor in enhancing the fund’s stewardship approach.
By reasserting its control over climate-related investments, The People’s Pension is sending a strong message to asset managers: it is committed to its climate targets and will not hesitate to move assets if stewardship misalignments persist.
This decision underscores the growing influence of asset owners in holding managers accountable for their climate actions, signaling a broader push for stronger climate commitments across the investment industry. Whether this move will catalyze broader change within the industry remains to be seen, but it certainly sets a significant precedent for responsible investment practices.
Sources: Net Zero Investor, ShareAction
