Pension funds ill-prepared for ESG reporting obligations

Research by asset servicing bank CACEIS reveals worrying lack of awareness

Nearly half of UK trustees and pension fund managers are not properly prepared to report on their scheme’s ESG policy, a survey by asset servicing bank CACEIS reveals.

According to the survey, 43 percent of pension schemes are ill-equipped to properly monitor and report on their pension schemes’ ESG policy to a high standard.

From October 2019, new UK legislation has required trustees to outline how they approach financially material factors, including ESG and climate change considerations, into the investment decision making within their Statement of Investment Principles.

See also: Pension schemes and members: Finding the common ground on ESG

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.

Good governance involves responsible investing, CACEIS noted, however it’s clear that implementing an ESG framework won’t always be easy due to 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 stated.

This creates a governance challenge for trustees, especially as they balance the demands of pension scheme members with the new ESG and climate change requirements.

The survey also found nearly three-quarters (73 percent) of participants in the pensions industry are unfamiliar with climate change-related risks and over a quarter (26 percent) find getting access to the right information to help with ESG policy challenging.

This information gap will make the necessary reporting even more labour intensive and time consuming, CACEIS warned.

Over half (55 percent) of trustees and pension managers believe exposure to ESG-related investments will increase significantly in the next three years, while 58 percent feel better ESG integration aligns with the values of their scheme members.

“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,” Pat Sharman, managing director of CACEIS, said.

“As a trustee myself, I fully understand the complexities involved – as a result, we are working with the PLSA for the second year running as an education partner and we’ll focus on helping trustees navigate this challenging landscape.”