Environmental, social and governance (ESG) regulation is needed alongside the consideration of values and beliefs in order to “keep pension schemes honest” and avoid issues around greenwashing, according to industry experts.

Speaking at the Pensions and Lifetime Savings Association (PLSA) Investment Conference 2021, DWS global ESG client officer, Roelfien Kuijpers, said that public policy decisions and regulatory frameworks around ESG are important to ensure an “equal playing field”.

Alongside this, she also emphasised the need to ensure that the industry does not condone a lot of greenwashing and that people don't "put a nice label on something but nothing changes".

She stated: "Public policy to me is very important, and having regulators speak up on this issue and creating frameworks I think is really important too.

“Values and beliefs at the plan beneficiary level, at the asset owner level and at the asset manager level are very important and will drive how investors ultimately are committing their capital.

“So very important are values and beliefs, but also important are regulatory and legal frameworks, particularly to prevent people from thinking that their investing in something that is trying to invest in good, but in the end doesn’t.

"I think having that framework around to keep the industry honest is very important too.”

This was echoed by Willis Towers Watson Thinking Ahead Institute co-head, Marisa Hall, who warned that whilst there is a gap between what many organisations say they are going to do and what they are actually doing, this is not the only issue.

“There is actually another gap that’s probably even more nefarious,” she continued, “which is what organisations are doing and whether or not they are adding value, whether or not they are understanding the impact of what they are doing and how that affects a broad range of shareholders.”

“So I do think legislation is needed, and having that approach where investors know what the rules are, what the terms of engagement are actually brings a lot of clarity to the industry think, and I think even more clarity could be bought about,” she stated.

Regulation can also “definitely act as a catalyst” to drive things such as sustainability up on a busy trustee board agenda, according to Hall, with recent changes in climate risk reporting requirements prompting renewed interest from trustees.

In the same session, British Airways Pension Scheme chief investment officer, David Stewart, highlighted the importance of sourcing new growth, calling for the consideration of a new kind of venture capital.

He stated: “It seems to me that one of the best places to create new sources of growth is within those sections of society we found out in the last year we owe most to, but where living standards and opportunities have stagnated.

“So, if I think of practical examples of what I would like to see, for example, is a new kind of venture capital. In practice I’m talking about establishing accelerator programmes based in the left-behind regions and overlooked communities, working with schools colleges and charities in those areas"

He continued: "What I’m not talking about, is a version of modern institutional venture capital, distorted by the search for the next unicorns, constrained by singular focus on total addressable markets for above a billion dollars.

“I’m talking about is a different culture and business model, to search for, create and fund a million little innovations, fuelled by the insights of frontline-lived experience, which will drive productivity, growth long-term wealth creation at grass roots levels.”

Stewart stated that pension funds and long-term investments would fit “fairly easily” into this, as setting them up and working with these programmes would allow schemes to gain preferential, low-cost access to an ongoing pipeline of “widely diversified venture capital projects” to fill their illiquid allocations over coming years.

He also emphasised that whilst one pension scheme on its own may not be able to establish such a programme, a “decent sized group of funds could”, also suggesting that government involvement would not be needed “for a whole range of reasons”.

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