ESG importance increasing among pension trustees; 20% still unsure of TCFD rules

Pension scheme trustee boards have placed greater importance on environmental, social and governance (ESG) issues since the government consultation on climate risks in August 2020, but many still feel unprepared.

Recent research by the Pensions Management Institute (PMI) and BMO Global Asset Management found that 53 per cent of trustee boards had ESG ‘high’ on the agenda, up from 29 per cent before the consultation.

Furthermore, 89 per cent of those surveyed were confident that they will be able to put adequate governance structures in place to meet Task Force on Climate-Related Financial Disclosures (TCFD) reporting rules.

However, almost half of trustees felt the board they sit on was only set up to deal with ‘some aspects’ of ESG and the incoming regulatory changes.

Additionally, one in five (20 per cent) said they did not fully understand the TCFD rules and 19 per cent had not received training on climate change risks and opportunities.

As a result, 73 per cent of respondents relied on consultants for their schemes’ adherence to ESG rules, despite 25 per cent doubting whether their asset managers are holding their investments to account on net-zero emissions targets.

Just over six in 10 (61 per cent) reported obstacles to implementing ESG policies, including 25 per cent who said a lack of evidence of the financial performance of ESG was the biggest hurdle and 17 per cent who cited a lack of products and services in the market.

“Many will be glad to see that ESG is now considered a top priority for most trustee boards,” commented PMI CEO, Gareth Tancred.

“However, it is concerning that a significant proportion of trustees do not feel fully confident in understanding the upcoming TCFD rules and responsibilities. Given the stakes, this has to be addressed as soon as possible.

“We would encourage those trustees that are yet to engage with ESG to learn more about it to see how their scheme can more effectively manage climate change risks and opportunities.”

BMO Global Asset Management director of UK institutional sales, James Edwards, added: “As ESG has risen rapidly up the agenda, the rate of change has made it challenging for some trustees to keep pace.

“The pressure to make the changes required as quickly as possible has eroded the confidence of some trustees and, concurrently, placed a greater reliance on the support of advisers.

“Using this research, we want to work with trustees to identify the barriers that still need to be overcome and consider some practical solutions. Our goal is for the industry to be better equipped to meet TCFD compliance benefit from stronger ESG policies and see the most appropriate solutions put forward by the providers in the market.”

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