Growing regulatory complexity is the top concern for 79 per cent of trustees and greater ESG standards are a big part of it, according to research from mallowstreet commissioned by Janus Henderson Investors.
The research, which surveyed over 160 trustees and pension professionals across 156 schemes, aims to identify ways in which managers and advisers can better support trustees, especially when it comes to ESG implementation and covenant management.
Only 12 per cent of schemes consider covenant risk to be relevant to their endgame journey. It was also found that the industry is still working on best practises in climate reporting, with 85 per cent of large schemes experiencing significant data availability challenges. But only 3 per cent of all schemes expect climate change to have a significant impact on their ability to provide pensions.
The survey looks into the relationship between the strength of the employer’s covenant with a scheme’s investment strategy and ESG implementation. Almost half of schemes with a trigger-based investment strategy would reduce investment risk should the employer’s covenant deteriorate, according to the survey. The strength of the employer’s covenant was also found to influence the focus on ESG implementation.
Janus Henderson Investors head of UK institutional Anil Shenoy says: “We are delighted to work with the expert team at mallowstreet to design this survey to help the industry better understand the pressures facing trustees, particularly around ESG implementation and covenant management. The employer’s covenant is key to a pension scheme achieving its primary obligation to pay pensions as they fall due. Therefore, an understanding of the employer’s covenant is crucial as part of an integrated approach to pension risk management and influences the level of investment and funding risks that a scheme can sustain.
“As an active fund manager, Janus Henderson Investors analyses individual companies at a fundamental level, taking account of a variety of different factors such as changing regulation, technological advances, competitive dynamics and ESG risks. The influence of these factors varies on sector-by-sector basis and the pace and potential for change has accelerated since the pandemic. This has increased the risk of an unexpected deterioration of a particular employer’s covenant and this survey highlights the importance of ensuring this risk is carefully monitored.”
Mallowstreet CEO Stuart Breyer says: “The roles of trustees and pension boards have changed significantly in the past two years. Macroeconomic, geopolitical and climate risks have increased dramatically, confronting trustees with new challenges they have not faced before. As a result, we developed the mallowstreet Trustee Survey in partnership with Janus Henderson to understand the current trustee landscape.
“Together with the APPT, PLSA, PMI and AMNT, we have collected over 160 responses across the industry, which we have collated into a free downloadable report. We hope that by making this research accessible on mallowstreet.com to all industry professionals, we can stimulate discussion on the challenges they face. And together, we can work towards a better retirement for everyone.”