Nearly three quarters of pension scheme trustees in need of better ESG data

Over half (57 per cent) of pension scheme trustees struggle with a lack of consistent data and inability to make comparisons, while 72 per cent require better environmental, social and governance (ESG) and carbon data, research from CACEIS has found.

The survey revealed that whilst climate risks were still high on the agenda for around 79 per cent of pension schemes, challenges and barriers in quantifying how climate risks impact scheme investments still remain.

Only 23 per cent of pension scheme respondents expected climate change to have a ‘high impact’ on their scheme’s investments, while 70 per cent expected it to have a ‘medium’ or ‘low’ impact.

Despite this, managing investment risks was cited by 65 per cent of schemes as a key driver as to why they are looking at ESG and climate risks, whilst 59 per cent attributed this to regulatory requirements.

However, only 11 per cent of pension schemes independently verified their scheme’s exposure to ESG and climate risks, with 80 per cent instead relying on their consultants or asset managers to address these risks.

CACEIS country managing director UK, Pat Sharman, also emphasised that climate change is "multi-faceted", explaining that some risks may be less obvious than others.

“In our survey, 37 per cent of pension schemes focused on the transition risks of climate change, while only 13 per cent are looking at physical risks, which in fact, are just as challenging to pension schemes because of the impacts that extreme weather events can have on the companies and issuers in which we invest," she continued.

She continued: “Climate change impacts schemes of all shapes and sizes. There is a need to create a level of informed independence in how all exposure to ESG and climate risks are assessed and monitored, and how their investments are impacted by the physical and transition risks of climate change at a portfolio, sector and security level.”

“However, data challenges shouldn’t stop the pensions industry taking action as this is improving rapidly.

"Companies are updating their plans to decarbonise in the future and reach net zero. As an industry we need to be proactive in using this information to manage our investment decisions.”

Adding to this, CACEIS UK product specialist, Scott Foster, commented: "For pension schemes climate risk governance is an increasingly important part of responsible investing.

"Although UK pension schemes are in a unique position to drive change and capital flows, access to reliable data and self-sufficiency in assessing climate risks is needed to empower change and avoiding green washing.

"These survey results highlight that many schemes are still struggling with access to aggregated high quality data, and lack the tools required to enhance the decision-making and governance process. Closing this data gap must be a priority as regulatory and financial risks build up."

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