Changing course: how pensions are approaching climate change and ESG.
UKSIF calls on regulator to investigate pensions’ “thin and non-committal” approach to climate risk management.
- A majority of pension scheme trustees believe ESG issues, including climate change, will negatively affect the value of savers’ money, finds report by UKSIF
- Report finds 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 call for government to create new public registry for pension scheme investment policies
London – 6 February 2020
Pension scheme trustees are failing to comply with their investment duties according to a new report from the UK Sustainable Investment and Finance Association (UKSIF). Following a change to the law in 2019, trustees must publish their approach to protecting people’s pension savings from the financial risks of climate change and other environmental, social and governance (ESG) issues.
UKSIF found that only one third of a representative sample of trustees have complied with the legal transparency requirements, and are calling for the Pensions Regulator to carry out a review to investigate levels of compliance across the UK’s pensions sector.
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. This comes despite Bank of England Governor Mark Carney’s warnings that climate change poses risks to pension funds.
The report calls for:
- New central registry for investment policies
UKSIF are calling on the government to set up a 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. As a solution, UKSIF are calling on the government to establish a central registry to host trustees’ policies, thus reducing the administrative burden on pension schemes. This would be similar Modern Slavery Registry, set up under the Modern Slavery Act 2015.
- Further guidance and support for trustees
Both government and regulator are urged to provide trustees with more guidance and materials to educate them about how to manage climate-related financial risk. UKSIF found evidence that suggested trustees lacked the expertise or knowledge required for manage financially material ESG risks. The report suggests ways for trustees to discuss ESG issues with their investment managers.
Ben Nelmes, Head of Public Policy at UKSIF said:
“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.”
On the central registry:
“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.”
Notes to editors
About the report
UKSIF reviewed policies in the Statements of Investment Principles (SIPs) published by trust-based pension schemes offering DC benefits between 1st October and 31st November 2019. UKSIF looked at a sample of 70 pension schemes, which was expanded after evidence of non-compliance was discovered, to give a sample of 30 SIPs from schemes, proportionate to the different sizes of scheme which operate in the UK pensions industry. You can read more about how we undertook this work in the report’s methodology.
About UKSIF
The UK Sustainable Investment and Finance Association (UKSIF) is the membership organisation for those in the finance industry committed to growing sustainable and responsible finance in the UK. Our vision is a fair, inclusive and sustainable financial system that works for the benefit of society and the environment. UKSIF was created in 1991 and has over 240 members and affiliates institutional and retail fund managers, pension funds, banks, research providers, financial advisers, consultants and NGOs. Visit our website to find out more: www.uksif.org
Contact
Ben Nelmes – Head of Public Policy at UKSIF & the report’s author – ben.nelmes@uksif.org / 07557 374 491 / 020 7749 9951
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