UK pension schemes are increasingly making progress towards net zero alignment, but a majority believe there are still obstacles the government could remove to assist their work to address climate risk.

According to a survey conducted by the Pensions and Lifetime Savings Association (PLSA), six in 10 UK schemes have a net zero alignment in place (60%).

Most schemes said their scheme or fund has made significant progress in playing its part in the transition to a net zero society (70%), especially Local Government Pension Schemes (LGPS) (100%). However, one in 10 say their focus on ESG has been reduced as a result of recent economic developments, such as the cost-of-living crisis and market volatility (12%).

Schemes that did not yet have a net zero commitment in place said this was largely to do with the difficulties of comparing like-for-like data received from investee companies and wanting to ensure their commitment is robust.

“[We are] fully committed to net zero but wish to work with our managers to make sure any commitment is meaningful and not arbitrary or box ticking,” said one respondent.

“We would welcome clear guidance to promote a standard approach,” said another.

Most respondents (59%) are not confident the UK will meet its climate target (59%), and most are concerned with recent updates which suggest there is no sustainable pathway to achieving warming of less than 2 degrees (74%).

The PLSA survey results are being published in light of the latest Intergovernmental Panel on Climate Change (IPCC) report, which said humanity is likely to overshoot targets to limit the global temperature increase to 1.5°C degrees.

More than half feel the government should be doing more to help investors go further to address climate risk (56%). Over half also believe the government could do more to remove obstacles to assist pension funds (53%), although one in 10 (11%) disagree. Having a coherent strategy on sustainable energy security and contributing to international bodies to define and standardise ESG measurement and reporting standards were some examples of the steps respondents said government could take.

Pension schemes are calling on the government to progress its Green Finance Strategy, progress and finalise the UK green taxonomy, ensure climate reporting is embedded across the investment chain – at present many of the largest employers remain outside of scope – and accelerate efforts to make the City of London the world’s first net zero financial centre.

Nigel Peaple, director policy and advocacy at the PLSA, said: “The IPCC’s “final warning” highlights the severity of not taking action to address the environmental crisis humanity faces. The pensions sector plays a key role in ensuring the world meets its commitment to minimise global temperature increases to 1.5°C degrees and in leading the financial sector to this goal.”

He added: “As the main representative for the UK’s pension funds, we are committed to working with members to help them achieve their net zero goals, by seeking policy change where needed, encouraging collaboration across the sector, and being at the forefront of the considerations on how the finance sector can respond to the climate emergency.”

Redington launches stewardship service

Investment consultant Redington has launched the Enhanced Stewardship Platform (ESP), which will be able to help asset owners take more control of their stewardship activities and to hold their investment managers to account more fully.

The platform is underpinned by Redington’s proprietary technology platform Ada Fintech, the firm announced.

Asset owners are facing increasing regulatory pressure to report on, and evidence, stewardship activities, Redington said.

In June last year, the Department for Work and Pensions (DWP) released new guidance for pensions schemes to report against engagement and voting policies. More recently, The Pensions Regulator (TPR) stated that it will be monitoring how well pension schemes are reacting to this new guidance.

Redington’s service will enable clients to deliver fully against the stewardship aspirations of the DWP guidance and navigate an increasingly scrutinised and complex space, it said.

Focusing on three key areas – reporting, assessment and engagement – the service will provide:

  • aggregated reporting of engagement and voting activity across all appointed fund managers;
  • assessment of quality and consistency of engagement and voting, as well as how well manager activities align with client policies and priorities;
  • active engagement with fund managers to challenge and hold them to account.

Redington’s sustainable investment proposition is led by Paul Lee, head of stewardship and sustainable investment strategy, and Anastasia Guha, global head of sustainable investment.

“Stewardship is one of the most powerful sustainable investment tools available to asset owners and is directly applicable to all asset classes. Yet it’s an area where asset owners remain overly reliant on their investment managers for reporting insights into areas such as engagement and voting,” Lee said.

“Investment managers have tended to focus on the stories they most want to tell rather than on the investments and issues that matter most to clients. Our new ESP service aims to turn this on its head and allows clients to take ownership of their stewardship reporting and assessment, removing this dependence on their managers. Through these new insights, they can challenge managers more effectively and hold them more fully to account,” he added.

Pension schemes could make ‘step change’ in data quality

A new report published today by consultancy LCP revealed the potential for pension schemes to use data matching techniques to make dramatic improvements in the quality of their member data, and calls on schemes to use the delay in the rollout of pension dashboards to get their data ‘dashboard-ready’.

To conduct the research, consultants LCP teamed up with Digidentity and TransUnion to analyse the member data of a large defined benefit (DB) pension scheme with around 17,000 non-pensioner members.

Selected information about members was shared with TransUnion and compared with its databases to check the accuracy of names, addresses and other personal data. Accurate name and address data will be crucial to the success of the pensions dashboard project, as these will be two of the three ‘verified’ data fields which will be sent to pension schemes for data matching.

TransUnion identified whether member data was 100% accurate (living as stated) or whether there were discrepancies (eg someone now at a new address, a member who had changed their name, etc), separately for active and deferred members of the scheme.

Across the sample as a whole, TransUnion found that member data was accurate for about five out of six active members, but only just over half (58%) of deferred members.

Steve Webb, partner at LCP, said: “The process of preparing for pensions dashboards could have a huge spin-off benefit by leading to a step change in the quality of pension scheme data. Both DB schemes and DC schemes will have data issues, sometimes relating to the lack of regular contact with members, but also because of inaccuracies in data supplied by employers.”

He added: “This research shows that even a relatively simple one-off exercise can lead to a major improvement in scheme data with a wide range of benefits for pension schemes and providers as well as members.”

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