On the go: Trustees should hold investment consultants to account on environmental, social and governance issues, the Association of Member Nominated Trustees and the UK Sustainable Investment and Finance Association have argued.
Feedback from AMNT members 18 months ago indicated that consultants were either not interested in providing ESG advice, or there was a disconnect between the quality of the advice at head office in the ESG teams (adequate), and that of the field consultants who had the primary relationship with the trustees (poor to non-existent).
UKSIF members from several points in the pensions value chain echoed these thoughts.
As a result, the AMNT and UKSIF commissioned research and have recently released a report based on the findings.
The publication, Holding Investment Consultants to Account: A guide for Trustees’, looks at the progress made by 16 companies (covering 85 per cent of the market) in meeting their commitment.
The report has indicated there was a fair way to go. It noted that during a time of regulatory change “the overwhelming majority of UK pension funds consist of small, resource-constrained, externally managed schemes whose trustees find themselves in a vicious circle on ESG matters: the fact that they receive little to no advice on ESG leaves them ill-equipped to challenge their consultants on the matter, who in turn assume that there is no client interest and therefore fail to raise the issue”.
However, more recently and based on consultants’ responses, the AMNT and UKSIF say the willingness of companies to help trustees is encouraging.
Most consultants provide some type of training programme on ESG for their clients but the impact of training was generally not measured.
The majority of consultants had either created new ESG training programmes for their employees or were updating their existing training programmes on ESG issues. Several investment consultants noted the inclusion of ESG within board meeting packs or as agenda items.
Others noted the expansion of their ESG advice across other service lines most notably into fiduciary management and actuarial services.
The AMNT and UKSIF said trustees should expect the following minimum services from their consultant (except those providing specialised advice), given regulatory expectations:
Development of trustee ESG beliefs.
Development of ESG policies, including stewardship (or integration of ESG considerations into existing policies), with regard to statement of investment principles revision/preparation.
Regular training programmes at board level on ESG issues.
Integration of ESG considerations across asset classes.
Helping trustees to embed ESG considerations into their internal governance mechanism, including non-investment areas.
Manager selection, appointment and monitoring processes on ESG issues.
Support in internal or external reporting requirements on ESG issues.
Inclusion of ESG into regular trustee board communications.
The AMNT and UKSIF urged consultants to meet minimum requirements as soon as possible or risk losing clients that wish to meet new regulatory expectations.
Janice Turner, co-chair of AMNT, said: “The investment consultants are key to enabling trustees to fulfil the new requirements: in our view, the new regulations, in effect, oblige any consultant of integrity to ensure their clients have the information and guidance in this regard that they should be entitled to expect from their professional adviser.”
