Trustees ‘confused’ over ESG implementation

Pension scheme trustees are “confused” about the best way to implement environmental, social and governance (ESG) factors into their investment strategy, according to new research.

A joint report by the Pensions Policy Institute (PPI) and Redington published today, 2 October, found that providers, trustees, independent governance committees (IGC), asset managers and consultants had concerns over the lack of definition around ESG.

In June, the Department for Work and Pensions said trustees will be required to produce a statement of investment principles (SIP) on how they consider the environment in their investment process by 1 October 2019.

The government later clarified that trustees will not be required to act on member’s views as part of the SIP requirements.

Redington responsible investment lead, Honor Fell, said: “Many schemes are still confused by what ESG really means, conflating this with social impact, sustainable and ethical investments.

“There are some excellent examples of pension schemes who are already doing this including HSBC and Nest. But it’s clear that in order to help more schemes take this seriously and avoid potential legal and performance issues, we need to work harder to define what ESG means to them and why it is important.”

According to Redington, the confusion is delaying the integration of ESG into the investment strategy.

Despite this, the firm said that a number of larger schemes are beginning to take the lead, developing “new creative solutions” which will soon be coming to market.

Redington head of DC and financial wellbeing, Lydia Fearn, said: “Children from a young age are learning about recycling and taking care of their environment – it makes complete sense from an investment perspective that we should be protecting our assets in this way.

"Climate is a great starting point but we are seeing wider integration of the social and governance factors. With new products soon to be available, schemes should be in a better position to choose an investment strategy that is right for their scheme and their members.”

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