Trustees sitting on hands over ESG investment

Trustees are now required to state their approach to financially material considerations including climate change in their statements of investment principles, but 38 per cent of industry practitioners surveyed by the Society of Pensions Professionals said most of their clients will take a tick-box approach, changing their statements but not their portfolio.

At 57 per cent, the majority of respondents said the consensus position was that while clients have a "genuine interest" in environmental, social and governance issues, they are yet to make any strategic changes. Just 2 per cent identified material changes as being the default approach.

When asked about the drivers of change on ESG, government, regulators and the general public's views were ranked far ahead of specific member beliefs or trustees wanting to take action of their own accord. The vast majority of respondents said less than 25 per cent of schemes had actually sought out member views on the issues.

Meanwhile 67 per cent thought regulatory threat was the main reason change is happening. The financial risk associated with unsustainable investments was the issue most commonly ranked last, behind societal expectations and risk to reputation.

SPP president Paul McGlone said: “The drivers for ESG investment are complex, not least because the concept itself is multi-dimensional. What’s clear from our research is that the pensions industry is still very much responding to the ESG agenda which is being driven by regulatory, governmental, and public opinion pressures. There does, however, appear to be a growing enthusiasm which gives us the impression it is just early days for the pensions industry.”

While trustees appear to be taking their time on ESG concerns, scientists are warning that society cannot afford to be so sluggish on climate change, the headline responsible investment theme and one which is specifically mentioned in the new regulations.

A report by leading climate scientists in September stressed that if the world is to meet the goals of the 2015 Paris accord on global warming, commitments to cut greenhouse emissions must be tripled.

Lauren Peacock, campaign manager at ShareAction, said: “This is very disappointing news to kick off the new year. Despite knowing the risks of inaction, the severity of climate change isn’t sinking in to most schemes, who are barely even playing catch up with regulatory changes and translating it in action.

“Worse still, in addition to portfolio-level changes, ShareAction found evidence last month that the largest pensions schemes in the UK are not even using their influence to make those companies in their portfolio more economically resilient to climate change,” she added.