The UK-based Investment Consultants Sustainability Working Group (ICSWG) has set out priorities to free trustees from regulatory burdens and encourage sustainable investment.
The ICSWG brings together leading UK investment consulting firms with the aim of seeking to improve sustainable investment practices across the investment industry.
Last summer, ICSWG launched a new influence workstream which has now explored how trustees can be freed to focus more on impactful investment decisions and less on regulations and report writing in its first paper.
The paper outlined three key actions. Firstly, it called for simplification of UK pension scheme sustainability reporting. It said it will work with regulators to simplify, reduce and harmonise reporting requirements and regulatory burdens in the hope for a “consolidated reporting framework” under which each scheme publishes a single sustainability policy plus regular reports on the implementation of that policy.
Using direct dialogue with policy makers and regulators, the group also hopes to remove barriers to sustainable investing for UK pension trustees.
More broadly, the group will seek regulatory framework and policy guidance that facilitates such action. It will focus on three strategic topics: double materiality (i.e. consideration of investments’ impacts as well as risks); trustee knowledge and understanding; and assurance of sustainability reporting.
The group said it will also look to get clarification of trustees’ fiduciary duties, contributing to the Financial Reporting Council’s (FRC) review of the UK Stewardship Code, and encouraging a focus on trustee action in any review of the Department for Work and Pensions’ (DWP) stewardship guidance.
Lastly, the group will work with the government to increase investment into illiquid sustainable assets, pointing out that there are “several barriers” to greater investment in these assets for defined contribution (DC) and defined benefit (DB) schemes.
For DC, it said greater clarity from regulators could encourage trustees to phase sustainable options into default funds. For DB, it said, the primary barrier is the tendency of trustees to focus on insurance-based endgames, because illiquid assets are not generally accepted by insurers.
The group aims to explore ways to enable and incentivise insurers to accept illiquid assets as well as find ways to incentivise schemes to consider a ‘purposeful’ run-on objective as an alternative to insurance-based objectives.
Claire Jones, workstream chair, as well as partner and head of responsible investment at LCP, said the workstream was set up to work with regulators and policymakers to help free trustees from tick-box exercises and enable them to focus more on sustainable investment, in order to improve outcomes for savers.
Iona Young, workstream member and sustainable investment consultant at Isio, said: “We are excited to collaborate with our industry colleagues to engage with regulators and policy makers as part of our commitment to systemic engagement.”
She added that the position paper lays out the ICSWG’s view of the greatest barriers to a regulatory landscape that facilitates positive, real-world sustainability outcomes, and groups thinking on how to make meaningful changes for the benefit of schemes and their members.
Read the digital edition of IPE’s latest magazine
No comments yet