Consultants welcome trustees’ ESG U-turn

Pension trustees are thinking differently about the relationship between ESG and their fiduciary responsibilities

Pension trustees have had a change of heart towards sustainable investing over the past five years, according to one major investment consulting group.

In a report documenting the changing views of UK pension funds published on Monday, Cambridge Associates said that pension funds are now looking at the importance of incorporating ESG factors into decision-making. It said that this is an about turn from five years ago when pension funds were concerned that doing so could be at odds with their fiduciary duty.

The observations will be well-received by UK policymakers preparing to introduce rules to compel trustees to consider ESG factors into their investment strategies.

In June, the Department for Work and Pensions concluded a consultation on these plans. Such factors are likely to include climate change, corporate governance and the impact of unsustainable business practices, according to Cambridge Associates.

The company’s managing director and ESG specialist, Chris Varco, said that, in just five years, the debate over ESG factors in investment has turned 180 degrees.

He said: “Pension funds and their investment advisers must now be ready to prove that they are taking their ESG responsibilities seriously.

“Where once the discussion centred on whether it was possible to focus on ESG factors while fulfilling your fiduciary responsibility, it now centres whether it’s possible not to take ESG into account.”

Varco added that pension trustees are now having much more in-depth conversations on fiduciary responsibility and the link with sustainable investing.

He added: “This goes much further than simply buying more ESG-labelled funds. This is a far-reaching requirement to consider the ESG effects of all the investments a pension funds makes.”