The Pensions Policy Institute has called for the ESG investment ecosystem to be harmonised to make life simpler for pension schemes and members.
This was the main conclusion of a new PPI’s latest report into ESG investing, with a specific focus on climate change.
The report takes into account the current legislative landscape in relation to this issue and explores the proposals for more effective support to encourage evolution and improved risk mitigation.
This ‘Engaging with ESG: Climate change’ report, sponsored by Phoenix Group, found half of schemes found this issue to be a major challenge citing either too much or contradictory information on this issue. were finding either too much information.
The PPI report recommends that joined-up goals, strategies and data sources across government and industry will improve scheme engagement with climate change.
This includes establishing a consensus on goals across all stakeholders to ensure climate change considerations are integrated across the investment landscape by a certain date and agreed steps on how to get there. There is also a focus on the need to produce a centralised data source which can provide a starting point for schemes unsure of where to start.
The PPI highlighted five areas that need further work:
- Integrated goals: Establishing a consensus on goals and the practical steps needed to achieve them across all stakeholders.
- Engagement and stewardship: A greater focus on engagement and stewardship activities to ensure that companies across the board are making progress towards climate change goals.
- Encouraging innovation from third-parties: Pressure from government, regulators, industry bodies and schemes themselves on those involved in schemes’ approach to climate change to provide products and strategies that meet needs in integrating climate change risks, as well as improving the data provided to schemes.
- Increasing knowledge and understanding: Improving scheme decision-makers’ knowledge and understanding of climate change across the industry, especially around the more practical aspects such as the implications of different investment approaches.
- Standardised data: Establishing a centralised data source which can provide a starting point for schemes that are unsure where to start or are overwhelmed by the quantity of data available.
PPI senior policy researcher Lauren Wilkinson says: “Focus on ESG has increased in recent years and the landscape for climate change investment especially has been developing quickly.
“Policy and regulatory change are also putting further pressure on schemes to learn and innovate. Schemes may need to take a more proactive role in engaging with those acting on their behalf, including pension providers and asset managers. A more joined-up approach across government and industry, especially in terms of practical steps, is also likely to be needed.”
Phoenix Group, head of investment solutions Gareth Trainor adds: “On ESG, we risk both too much, and too little leadership. There are many industry groups, regulations, initiatives, and competing propositions to consider, and the industry needs to get their ducks in a row.
“The ecosystem needs to be simplified for pension schemes and their members. We believe that it is time for industry bodies to pool their collective capabilities and lead the sector by harmonising what best practice looks like”.