Investment consultant at Quantum, Stefano Carnevale, spoke during an hour-long webinar with ICAEW South, South West and Wales, focussing on ESG issues and opportunities for trustees of small to medium defined benefit pension schemes.
In light of pressing megatrends such as climate change, inequality, digitalisation and cybersecurity, Stefano said: “When considering sustainability and responsible investing, it’s often the case that most investors focus solely on environmental concerns, yet we must not ignore the social and governance impacts as all three facets of ESG play a role in creating a better future.
“Younger investors are driving trustees and pension providers to incorporate ESG into investment decisions which will generate positive, long-term returns. Luckily, ESG asset options are becoming more accessible through a rise in pooled products and investment vehicles, allowing for both passive and actively managed funds.”
In addition to commitments to align portfolios with metrics such as the Paris Agreement, trustees will also need to demonstrate ESG considerations through stricter reporting procedures.
To date, UK pension schemes are required to update their Statement of Investment Principles (SIP) to reflect the trustee’s policies on financially material considerations (including ESG), non-financial considerations, stewardship and governance requirements.
From this month (October 2021), UK pension schemes are required to produce an annual implementation statement to show how the policies reported in SIPs have been actioned.
Stefano said: “As the regulator becomes more heavily involved, trustees will need to show that they have effective governance to assess and manage ESG risks and opportunities. We would recommend that trustees familiarise themselves with the Taskforce for Climate-Related Financial Disclosure (TCFD) and their disclosures for governance, strategy, risk management, metrics and targets in readiness for future reporting practices.”
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