Major UK Pension Fund Withdraws £28bn from State Street Amid ESG Concerns

The People’s Pension A New Era in Responsible Investment and Sustainability

In a significant move that underscores the growing importance of Environmental, Social, and Governance (ESG) principles in pension fund management, The People’s Pension, one of the UK’s largest independent pension funds, has announced a major shift in its asset management strategy. This change involves the appointment of European asset manager Amundi and US-based Invesco to oversee a substantial portion of its £32 billion portfolio.

The Background

Until recently, State Street Global Advisors (SSGA), the third-largest US asset manager, managed the entirety of The People’s Pension’s assets. However, following a comprehensive review of its ESG policies and investment stewardship priorities, The People’s Pension has decided to diversify its asset managers to better align with its commitment to responsible investment and sustainability.

The New Appointments

Amundi, Europe’s largest asset manager, will now manage £20 billion in passive developed market equities, with a specific focus on climate-focused index strategies. This mandate includes five regional sleeves covering major developed markets and will incorporate ESG data, metrics, reporting, and analytics through Amundi’s ALTO platform. This approach is designed to deliver strong risk-adjusted returns while adhering to rigorous ESG standards.

Invesco, on the other hand, will oversee £8 billion in active fixed income investments. This mandate spans sovereign bonds, investment-grade credit, and high-yield bonds across the UK, US, Europe, and emerging markets. Invesco’s strategy will emphasise net zero alignment, ESG analysis, and active engagement with issuers to promote sustainable business practices. This holistic approach aims to deliver robust long-term returns while supporting the broader sustainability goals of The People’s Pension.

Why Amundi and Invesco?

The selection of Amundi and Invesco followed an extensive research and due diligence process conducted by the equity and fixed income teams at People’s Partnership, the entity that provides investment services to The People’s Pension. Both managers were chosen for their exceptional expertise and their strong commitment to responsible investment, which aligns perfectly with The People’s Pension’s updated Responsible Investment policy.

Mark Condron, Chair of Trustees for The People’s Pension, highlighted the significance of this move, stating that these appointments emphasise the fund’s broader mission to balance strong financial performance with responsible investment principles. By selecting Amundi and Invesco, The People’s Pension has demonstrated its commitment to sustainability, active stewardship, and long-term value creation for its nearly seven million members.

The State Street Factor

State Street Global Advisors, which previously managed the entire portfolio, will now retain only £5 billion of The People’s Pension’s assets. This reduction follows State Street’s declining support for ESG initiatives, including its withdrawal from the Climate Action 100+ initiative and a notable decrease in its support for environmental and social shareholder proposals in 2024.

A Growing Commitment to ESG

The People’s Pension’s decision reflects a broader trend among pension funds to prioritise ESG-focused investments. The fund has updated its Responsible Investment policy to include key stewardship priorities such as climate change, nature, and human rights. This policy aims to encourage companies to adopt more sustainable practices through active engagement rather than relying solely on exclusions.

Looking Ahead

This transition marks a significant step for The People’s Pension as it seeks to align its investment strategy with sustainability goals. The move to segregated mandates held by Northern Trust, the scheme’s custodian, provides greater control, transparency, and flexibility in its investment approach.

Dan Mikulskis, Chief Investment Officer at People’s Partnership, described this change as a major evolution for The People’s Pension, emphasising the importance of delivering strong, sustainable returns for its members.

Implications for the Industry

The People’s Pension’s shift towards ESG-focused investments is part of a larger industry trend. UK pension funds, collectively managing over £3 trillion in assets, are increasingly diversifying their investments and prioritising sustainability. This includes investments in productive assets such as private equity, property, and corporate bonds, which support economic activity and align with long-term sustainability goals.

Conclusion

The People’s Pension’s decision to appoint Amundi and Invesco as its new asset managers is a testament to the growing importance of ESG and sustainability in pension fund management. This move not only enhances the fund’s commitment to responsible investment but also sets a precedent for other pension funds to follow.

As the pension industry continues to evolve, it is clear that balancing strong financial performance with sustainable and responsible investment practices will be at the forefront of investment strategies.

At Cutts & Co Accountancy, we recognise the significance of these changes and the need for our clients to be informed about the evolving landscape of pension fund management. As your trusted advisers, we are committed to helping you navigate these changes and ensure that your financial strategies align with the latest trends and best practices in the industry.