Pensions and ESG communications: sustaining confusion

Looking at several large personal pension providers – SIPP, workplace pension, and institutional – it’s clear that they’re all taking ESG seriously. But what are they actually saying?

The way in which the information is presented varies wildly. For the most part there’s no single, uniform ESG policy page or section; rather there are usually several pages addressing different elements of the ESG piece, and some of them aren’t even linked.

This speaks to the fact that a) there are no standard rules/regulations on ESG reporting, in the same way as an annual report and b) it’s an evolving internal discussion.

What that means in practice however is that investors cannot compare between providers. This matters because investors, particular younger ones, want a fund (or funds) that best meets their own ethical/responsible/sustainable criteria. Until that happens, providers may struggle to reach these new audiences/customers, while potentially misleading existing member/customers with ESG claims that cannot be easily verified or justified.

Which leads to the question: should a pension provider’s ESG claims be subject to a formal process of reporting and scrutiny? There has been a great deal of talk of ‘greenwashing’ in recent years as companies large and small jump on the ESG bandwagon with varying degrees of commitment. But a multibillion pound pension scheme has considerable financial clout. If a large pension fund commits to investing in renewable energy over fossil fuels, for example, the impact will soon be felt.

Pension schemes will always prioritise the interests of their members, and indeed they would be remiss to do anything else. But as the case for sustainable investment becomes more mainstream, many pension schemes are actively linking a sustainable investment strategy with their members’ long term interests.

With climate change set to remain high on the investment agenda, there’s a clear case for more consistent communications on ESG matters but in the absence of standard reporting metrics, that may be easier said than done.

The recent initiative by a group of UK investment consultants to define a list of ESG metrics for all public equity and credit asset managers to report on, or work towards being able to report on, is a step in the right direction. With climate change set to remain high on the investment agenda there’s a clear case for more consistent communications on ESG matters. But unless and until standard, industry-wide reporting metrics are widely adopted, confusion and lack of clarity will remain.