ESG intention and action misaligned despite strong pension trustee support

Less than half (40 per cent) of defined benefit (DB) pension scheme trustees believe that their schemes' environmental, social and governance (ESG) policy reflects their preferred approach to sustainable investment, according to research from XPS Pensions Group.

As reported by our sister title, Pensions Age, the findings have prompted concern over the continued gap between intention and action on ESG integration, as the survey also found that nearly all (95 per cent) trustees agreed on the importance of ESG investment principles.

Indeed, the results suggested a "clear desire for change in the industry", with 83 per cent of trustees stating that stewardship plays an important role in how scheme assets are managed.

However, whilst 85 per cent of trustees agreed that it is important to communicate their scheme’s responsible investment strategy with members, only 46 per cent thought that member views should be considered when agreeing investment strategy.

In addition to this, 78 per cent of respondents wanted to monitor the activity of investment managers beyond minimum compliance checks in order to avoid greenwashing.

This is not the only step that trustees can take to ensure their ESG approach is aligned with their preferences however, as XPS has also outlined a number of areas of focus that trustees can adapt in order to help resolve the gap between intention and action.

This included enhanced practices and reporting from fund managers to ensure accountability, a focus on innovation for fund products, and the development of a UK-specific equivalent of the EU Sustainable Finance Disclosure Regulation.

XPS Pensions Group chief investment officer, Simeon Willis, commented: “We are in the midst of a significant change of direction in the industry. This survey clearly demonstrates that ESG has rightly gained trustee support and buy in - but there is still a lot of work to do from here.

“We need clearer terminology, better information and more choice to facilitate investment in sustainable products by schemes.

“Fortunately the asset management industry is bought into this too, and has been for some time. When we polled 90 representatives of UK fund managers at our conference back in 2019, 76 per cent thought that investments should be used as a force for good against climate change.

“But even with this good intent we need to move quickly as time is running out to align pension schemes’ portfolios with the Paris Agreement target of keeping global warming well below 2°C.”

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