A research study by custody and asset servicer CACEIS has shown that more than two fifths (43%) of UK-based trustees and pension fund managers do not feel properly equipped to monitor and report on their pension schemes’ environmental, social and governance (ESG) policies to a high standard.

The research follows the UK’s new legislation of 1 October 2019, that requires 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.

Pat Sharman, managing director at CACEIS, said: “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.”

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 firm said, adding that good governance involves responsible investing.

“However, it’s 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 ESG characteristics of a company – and sometimes analysts may disagree on their findings,” the study found.

“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.”

Sharman said that ”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”.

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

CACEIS said that ensuring the vital message around the long-term investment consequences of all ESG factors is communicated to all stakeholders is an area where improved resource and education is needed.

 

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