PLSA AC 2020: Lack of ESG data and understanding prominent amongst pension schemes

Over half (63 per cent) of pension schemes do not have sufficient information to translate climate change risk into their investments, according to research by Caceis and the Pensions and Lifetime Savings Association (PLSA).

Published at the PLSA Annual Conference 2020, the research found that almost three quarters (74 per cent) of schemes need access to data in order to manage climate change risk in schemes, whilst 55 per cent require further clarity around the forms of climate change risks across industries.

In addition to this, 48 per cent of schemes stated that their largest knowledge gap on environmental, social and governance (ESG) issues and climate change, was understanding what data can actually be used to assess climate change.

Meanwhile, over a third (34 per cent) stated that they need greater visibility on the tools that can help on climate change reporting.

Commenting on the findings, Caceis UK managing director, Pat Sharman, stated: “These are some really big numbers that allude to the fact that schemes of all shapes and sizes are really struggling with trying to understand climate risk and what that means.

“I think that’s why we see a steer towards ‘I’m going to rely on regulation to force me down the road’ attitudes, rather than understanding there are real risks to the scheme and the outcome of its members.”

Sharman also highlighted "surprising" findings on the expected impact on scheme investments, with 49 per cent of schemes expecting a 'moderate impact' and 22 per cent expecting a 'low impact'.

She stated: "I was really shocked that over 70 per cent thought it was a moderate or low impact.

"It’s a high impact, and as pension schemes, we need to consider better oversight and better governance around ESG and climate change risks."

She continued: “Looking at the results of our survey, and other discussions around the industry, I think the only way some schemes will focus on climate change will be forced upon them through regulation.

“We know climate change is a really complex one, and most of us are still developing our knowledge, including me, and so I think this is one of our biggest challenges is actually understanding the risks and opportunities.

“So regulation may be the motivation for many, and I do understand that, however I believe our obligations as a trustees we should be understanding the risks and financial implications for our members.”

Indeed, the survey found that whilst almost half (49 per cent) of schemes have been driven to increase ESG factors as a driver for better member outcomes, 45 per cent cited new regulation as their key motivation.

Furthermore, more than half (58 per cent) of schemes stated that they would prefer asset managers take the lead in voting decisions on pooled fund holdings, whilst just 16 per cent wanted their scheme to implement its own voting policy.

Commenting on this, Sharman added: “There’s an increasing view that pension schemes need to have more active stewardship in the way their assets are managed, and more schemes should actually have their own voting policies.

“Now I know this is a challenge in pooled funds, and there’s a lot of discussion around how we can split votes within pooled funds, and asset managers don’t want the administration and in some markets its actually impossible to do.

"However, I think this is something we need to consider further as an industry, and ways in which we can actually have our own voting policies."

She added: “There are some industry standards, like the AMNT Red Lines Policy that you can adopt, and then you can ask your asset managers to adopt that policy.

"I think there’s more work to be done, but it's not a surprising result.”

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