On the go: Managing climate change is now “business as usual” for pension funds, while other factors surrounding political instability have diminished in importance, Tim Manuel, co-head of responsible investment at Aon, told the Pensions and Lifetime Savings Association’s annual conference.
During a discussion on Wednesday about accelerating action on climate change, Manuel said that findings from Aon’s 2021 Global Responsible Investing Survey, due to be released in October, revealed an across-the-board rise in climate awareness, but “complex global issues” are also permeating schemes’ decision-making processes.
He said an increased sentiment around member engagement was a leading cause as to why schemes were investing responsibly, with 40 per cent of UK pension plans identifying it as a leading driver of their sustainable policies — almost twice the rate as seen in 2019’s report.
Manuel said that this finding “struck a chord” with him, as it revealed an “important move forward in sentiment”, and an “acknowledgement of the ultimate ownership that trustees have for all decisions, but also the power that trustees have to instigate change”.
“Sentiment translates into more clear intentions, and increasingly actions,” he added.
The data also revealed a rise in the number of schemes that see responsible investing as a tool that will lead to better risk-adjusted returns (65 per cent), and that their investment decisions will make a positive social or environmental impact (44 per cent).
Of the 96 defined benefit and 25 defined contribution plans, Manuel noted that 20 per cent of them have already committed to a net-zero future, while a further 50 per cent had not made a commitment but were planning on doing so. The remaining respondents said they do not intend on making a net-zero pledge.
He said that the UK pensions industry could be in a position where more than two-thirds of schemes have committed to net-zero goals. “That would really transform the way our industry approaches our role in the transition,” he added.
Other concerns, including protectionism and nationalism, have “diminished substantially relative to 2019”, on the back of a changing political backdrop, but are still important factors for trustees to consider, he noted, adding he was surprised that health crises did not rank more highly.
And while the initial findings from the report indicate positive progress, Tegs Harding, director at Independent Trustee Services, and trustee director at Atos UK 2019 Pension Scheme, said it is important that trustees can vet fund managers on their sustainable commitments and net-zero pledges.
“Absolutely everybody will tell you that they do fantastic work in this area, and seeing through that can be quite hard,” she said.
She added that trustees should use their own data and metrics to interrogate information provided by fund managers, and doing so will be a “huge help” in being able to see through marketing materials.
“Rather than passively receive a presentation from a manager, actively interrogate them with the information that you want to see,” Harding said. She added that scrutinising net-zero commitments will become an increasing “obligation” for trustees on the back of greater regulation and member demand for accountability.
Trustees are “definitely going to have to find a governance model that works”, and which will allow them “to then find time to do this sort of activity”, she said.
