Defined contribution (DC) pension providers are showing growing sophistication in their approach to environmental, social and governance (ESG) integration, but data and transparency gaps continue to hold the market back, according to EY’s latest ESG for DC Providers report.

The study - based on a survey of nine UK DC providers managing around £400bn in assets - found widespread progress across governance, investment, and stewardship practices, with all respondents committed to net-zero targets and enhanced oversight of sustainability risks.

However, EY warned that fewer than half have published credible climate transition plans, and inconsistencies in ESG data remained a key barrier to measuring progress.

The findings come as the UK DC market prepares for sweeping changes under the Pension Schemes Bill, which will require providers to have at least £25bn in their default fund by 2030 - a move expected to trigger further consolidation and competition around sustainability standards.

All nine respondents reported having governance frameworks and ESG oversight processes in place, with eight having delivered staff training on sustainability over the past year.

Climate change ranked as the top ESG priority for every provider, followed by nature, social inequality and transparency in reporting.

In addition, every provider surveyed had a decarbonisation strategy for its default fund and a net-zero goal, but only four had published a formal transition plan detailing how those targets would be achieved.

All also have some form of nature-related commitment, though EY said these varied significantly in scope and maturity.

On investment integration, the report revealed that all providers offered ESG-focused funds for self-select members, and eight included explicit ESG-linked funds in their default strategies.

Notably, half reported turning down investment opportunities in the past year due to sustainability concerns.

The most common exclusions applied were those related to controversial weapons, tobacco, gambling, coal, and violations of the UN Global Compact.

All respondents are also signatories to the Financial Reporting Council’s stewardship code, with several adopting more active engagement approaches that link climate and nature objectives.

Meanwhile, member engagement is also evolving through improved transparency, with all providers now publishing ESG reports and many introducing online dashboards, webinars and interactive content.

Nonetheless, only four of the nine respondents currently obtain independent third-party assurance for their ESG data - a gap EY said raised questions over reliability and comparability across the sector.

Commenting on the findings, EY UK pension consulting leader, Paul Kitson, said the research highlighted both the progress achieved and the distance still to be travelled.

He argued that the DC market was entering a period of “large-scale transformation”, with the Pension Schemes Bill reshaping the landscape and forcing providers to scale up by 2030.

“As the market consolidates, ESG will become a crucial way for providers to stand out,” Kitson explained.

“That’s a positive shift - one that should raise sustainability standards and strengthen resilience against climate risks for savers.”

Kitson suggested that EY’s analysis showed “a genuine commitment from DC providers to responsible governance, risk management and climate action”, with all survey participants pursuing net-zero objectives.

“What’s missing now,” he added, “is greater consistency and transparency in how that progress is measured. Data quality and disclosure are where the real work needs to happen next.”

He emphasised that those providers who prioritised robust ESG practices would be best positioned to “not just comply with regulation, but to lead the way - proving that the DC sector can be a force for sustainability and positive change on behalf of members.”

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