Investment - Articles - Surge in importance of ESG to trustees but barriers remain

ESG has soared in importance to become a “high” agenda item for more than half of trustee boards (53%[1]) since the Department of Work and Pensions consultation on climate risks in August 2020, according to respondents to a survey from the Pensions Management Institute (PMI) and BMO Global Asset Management.

 As ESG becomes more important to trustee boards, 89% of those surveyed are confident they will be able to put in place adequate governance structures to meet the Task Force on Climate-Related Financial Disclosures (TCFD) reporting rules. However, one in five polled (20%) admits to not fully understanding the TCFD rules, and 19% state they have not received training on climate change risks and opportunities. In addition, almost half of trustee members polled (48%) feel the board they sit on is only set up to deal with “some aspects” of ESG and the impending regulatory changes.

 Perhaps unsurprisingly then, 73% of PMI members polled said that they rely on their investment consultants for their scheme’s adherence to the myriad of ESG responsibilities they face. This reliance on third parties however reveals some concern as one in four of those polled (25%) are not confident their investment managers are holding their underlying investments to account for net-zero emissions targets.

 Six in ten PMI members polled (61%) also see material obstacles to implementing ESG policies, including 25% who believe a lack of evidence of the financial performance of ESG investments is the biggest hurdle. A further 17% think a lack of products and services in the market is the greatest obstacle despite the flurry of recent product launches.

 Gareth Tancred, CEO of the Pensions Management Institute, comments: “Many will be glad to see that ESG is now considered a top priority for most trustee boards. 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.”

 James Edwards, Director of UK Institutional Sales at BMO Global Asset Management, comments: “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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