On the go: Only 40 per cent of defined benefit pension scheme trustees believe that their scheme’s environmental, social and governance policy reflects their preferred approach in this area, new research has revealed.
XPS Pensions Group, which surveyed more than 200 trustees across 80 pension schemes, concluded that while nearly all (94 per cent) of the respondents are in agreement at the importance of ESG investment principles, many find it difficult to implement them.
The research showed that trustees also believe it is time to be more transparent with members on ESG issues, with 85 per cent agreeing that it is important to communicate their scheme’s responsible investment strategy with members, XPS stated.
However, trustees stopped short of supporting that members’ views should be reflected in the scheme’s strategy, with only 46 per cent agreeing that this should be considered.
To help resolve the gap between intention and action, XPS has suggested that trustees should focus on innovation in fund products, which can help them to “identify strategies that supports their ESG ambitions”.
The pensions consultancy is also advising that the development of a UK-specific equivalent of the EU Sustainable Finance Disclosure Regulation, which helps to identify funds that incorporate ESG risk and management and sustainable issues into decision-making, should be considered.
XPS also suggested that fund managers should have enhanced practices and reporting for existing fund products, so that “accountability around effective integration and risk management” can be ensured.
Finally, trustees should have regular interaction with advisers, “who should bring the latest thinking to pension schemes and champion continuing improvement in the asset management industry”.
According to Simeon Willis, chief investment officer at XPS Pensions Group: “We are in the midst of a significant change of direction in the industry.
“This survey clearly demonstrates that ESG has rightly gained trustee support and buy in — but there is still a lot of work to do from here. We need clearer terminology, better information and more choice to facilitate investment in sustainable products by schemes,” he said.
The XPS survey also showed that 78 per cent of trustees want to monitor the activity of investment managers beyond minimum compliance checks in order to avoid ‘greenwashing’.
Willis said: “Fortunately, the asset management industry is bought into this too, and has been for some time.
“When we polled 90 representatives of UK fund managers at our conference back in 2019, 76 per cent thought that investments should be used as a force for good against climate change.
“But even with this good intent, we need to move quickly as time is running out to align pension schemes’ portfolios with the Paris Agreement target of keeping global warming well below 2C.”
