CACEIS found that 43 percent of trustees and pension fund managers in the UK are unprepared to report on their scheme’s environmental, social and governance (ESG) policy to a high standard.
As of 1 October 2019, new UK legislation required trustees to outline how they approach financially material factors into the investment decision making within their Statement of Investment Principles.
The material factors include ESG and climate change considerations, which globally has been a hot topic in recent times.
On climate change, 73 percent of CACEIS’ survey participants in the pensions industry said they are unfamiliar with climate change-related risks.
A further 26 percent revealed that they find getting access to the right information to help with their pensions scheme ESG policy challenging.
Commenting on this, CACEIS said: “This information gap will make the necessary reporting even more labour intensive and time consuming. Trustees will want to validate the fact their funds have implemented sustainable or ESG principles’. Gaining access to the right data will be key to do this.”
CACEIS also observed that the momentum across the industry is firmly moving towards responsible and sustainable investing.
The survey found that 55 percent of those trustees and pension managers surveyed believe that exposure to ESG-related investments will increase significantly in the next three years.
CACEIS noted that this is further evidenced by the fact that 58 percent feel that better ESG integration aligns with the values of their scheme members.
According to CACEIS, the legislation is a step forward towards ensuring trustees have a plan of action when embedding ESG risks into trustee governance and strategic plans for schemes.
The asset servicing bank also highlighted that it is clear that implementing an ESG framework won’t always be easy to apply because of the numerous touchpoints involved.
“It can be very difficult, for example, to assess the Environmental, Social & Governance characteristics of a company – and sometimes analysts may disagree on their findings”, CACEIS outlined.
Pat Sharman, managing director, CACEIS, commented: "While 2019 saw ESG, and with it the improved standards of governance, creep higher on the corporate agenda; now is the year ESG becomes front and centre for UK pension schemes.”
Sharman continued: “From a corporate citizenship perspective, as well as fiduciary requirement, implementing climate change and good ESG principles will be important for pension schemes of all shapes and sizes to help manage longer-term risks for the benefit of members.”
