By Bhavika Haria, Associate and Investment Consultant, Barnett Waddingham
This is the challenge the Accounting for Sustainability (A4S) Sustainability Principles Charter seeks to address. Developed by A4S in collaboration with the Church of England Pensions Board and Railpen, the charter is a sector-wide initiative to embed sustainability into every stage of the bulk annuity process, from pre-transaction due diligence to post-transaction stewardship.
Why sustainability matters in bulk annuities
The bulk annuity market is expected to see over £500 billion in transactions over the next decade. With such scale comes responsibility. Pension assets must not only deliver financial security for members but also contribute to a resilient, sustainable economy.
Bulk annuity transactions are often viewed by trustees as the final step in a scheme’s journey. For the assets themselves, however, it marks the beginning of a new chapter, as investment decisions pass to insurers. These decisions will shape both financial outcomes and environmental and social impacts. For schemes with strong environmental, social and governance (ESG) commitments, this transition can feel like a loss of visibility and influence. The A4S Sustainability Principles Charter is designed to bridge this gap, keeping sustainability a priority even after the bulk annuity transaction is complete.
At the heart of the charter are four guiding principles that embed sustainability throughout the bulk annuity process:
Transparency: clear disclosure of sustainability values, investment beliefs and ongoing commitments.
Decision-making: evidence of how sustainability factors are integrated into investment analysis and stewardship.
Reporting and engagement: ongoing communication with stakeholders on sustainability performance.
Collaboration: a commitment to sector-wide learning and continuous improvement.
Since launch, the charter has gained significant traction, with more than 30 insurers, advisers, and pension funds signing up as signatories. The introduction of the Bulk Annuity Sustainability Survey (BASS) has further streamlined the process, providing a single, standardised framework that sets a high bar for how insurers consider sustainability in their strategic and investment decisions.
Our approach: turning insight into action
At BW, we take a rigorous approach to assessing the sustainability credentials of bulk annuity providers, so clients benefit from robust, forward-looking stewardship of their pension assets.
We have conducted a detailed review of the sustainability practices of leading bulk annuity insurers. This process draws on direct responses to BASS, public disclosures and our own engagement with providers. The insights we gather cover a range of factors, including:
Integration of sustainability into investment beliefs and governance.
Clarity and ambition of climate- and nature-related targets.
Quality and transparency of reporting.
Depth of stewardship and engagement activities.
Alignment with industry initiatives and best practice.
By systematically collecting and analysing this information, we can identify strengths and areas for improvement for each bulk annuity provider – helping clients make informed decisions when selecting an insurer and meeting the requirements of a typical Statement of Investment Principles.
Our rating methodology is designed to be transparent, fair and actionable. Every insurer starts with an 'On par' rating, reflecting baseline expectations for sustainability in the bulk annuity market. We then adjust this rating to 'Ahead' or 'Behind' based on the balance and materiality of positive and negative indicators identified in our review.
Positive indicators might include:
Sustainability embedded in core investment beliefs and decisions across all asset classes.
Strong governance structures supporting sustainability at board and executive levels.
Ambitious, group-wide climate and nature targets with clear interim milestones.
Comprehensive reporting (e.g., TCFD-aligned, externally assured).
Documented examples of active stewardship and engagement with measurable outcomes.
Participation in leading industry initiatives and charters.
Negative indicators could involve:
Aspirations rather than binding targets, reducing accountability.
Lack of dedicated ESG personnel within the bulk annuity business.
Inability to provide scheme-specific emissions data.
Limited detail on engagement and escalation strategies, or weak links between sustainability and remuneration.
Our ratings are not static; they are reviewed annually and evolve as insurers’ practices develop and as industry standards rise. We also triangulate our findings with additional sources to ensure credibility.
This structured approach delivers several key benefits for clients:
Enhanced provider selection: ratings highlight insurers whose sustainability credentials align with clients' values and long-term objectives.
Risk management: by surfacing strengths and gaps, we support management of reputational, regulatory and financial risks.
Ongoing stewardship: insights enable clients to hold insurers to account for their sustainability commitments, fostering continuous improvement and transparency.
Market influence: setting clear expectations and sharing best practice helps raise the bar across the bulk annuity sector.
Looking ahead
The A4S Charter and BASS are not just tools for today; they’re shaping the future of the bulk annuity market. As expectations around sustainability continue to rise, scrutiny of how pension assets are managed post-transaction will increase accordingly.
At BW, we’re committed to staying ahead of this curve. By continuously refining our assessment frameworks and deepening our engagement with insurers, we aim to provide clients with the clarity and confidence they need to make informed, future-proof decisions.
Sustainability is no longer a peripheral concern; it’s central to long-term value. As the market continues to change, we’ll help clients make clear, well-evidenced decisions with insight and integrity.
Senior Investment Analyst Alec Lee contributed to this blog.
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