The Pensions Regulator should investigate why two thirds of pension scheme trustees are failing to comply with their environmental, social and governance (ESG) obligations, a new report from the UK Sustainable Investment and Finance Association (UKSIF) demands.
UKSIF found that only a third of a sample of trustees have complied with the legal transparency requirements, and is calling for the Pensions Regulator to carry out a review to investigate levels of compliance across the UK’s pensions sector. The non-compliance is understood to have been found amongst single-employer trusts.
The body is calling on the government to create new public registry for pension scheme investment policies.
The report found most pension scheme trustees have adopted “thin and non-committal” policies to manage environmental risks, and many have not complied with minimum legal obligations
UKSIF’s review looks at the different policies trustees have adopted to comply with the new regulations. It found that although a majority of trustees say they believe ESG issues will affect the financial performance of their scheme’s assets, most trustees have adopted “thin and non-committal” policies to manage ESG financial risk.
The report calls for a new central registry to host trustees’ policies on ESG issues. The report notes that many pension schemes do not have websites, and may face practical challenges to publishing their policies online.
UKSIF head of public policy Ben Nelmes says: “Trustees are responsible for ensuring that millions of UK workers’ retirement savings are managed responsibly; they must have a policy to manage any kind of financial risk, including from climate change.
“Our findings suggest that many trustees have failed to comply with their legal requirements to publish their approach to managing material environmental, social and governance risks.
“The Pensions Regulator should launch a thematic review to investigate whether the industry as a whole is fulfilling its responsibilities under the law and to savers. Trustees must be transparent about how they manage people’s pension savings, but too many schemes do not make the right information publicly available.
“Ministers should amend the Pension Schemes Bill when it goes through Parliament to create a registry and let savers see how their money is being managed.”
Hymans Robertson head of responsible investment Simon Jones says: “The long-term investment horizon for DC means that there are opportunities available to improve member outcomes if climate risks are appropriately understood and addressed. In saying that, trustees have made rapid progress over the last twelve months to get up to speed with regulation and formulate their ESG approach. Many trustees are only at the starting point of their journey and we expect they will continue to evolve their approach to climate change investing and develop their policies over coming months and years.
“However, we have already seen many clients incorporate an ESG slant into their portfolios and this is set to increase over coming months as trustees understanding of ESG and climate change grows. Further, we see members are increasingly demanding a clear position on climate change and, by dealing with it now, trustees may find they foster a more engaged environment with a membership that feels part of the decision.”