When it comes to guidance on environmental, social and governance matters, pension professionals prefer to rely on their peers instead of asset managers, consultants and industry bodies, as clear messaging is dependant on transparent data, experts say.
The substantial rise of ESG factors within the pensions industry has been fuelled by a greater understanding and acceptance of the need to promote environmentally positive practices.
Individuals are aware of the impact of carbon on the environment, the need to foster better social frameworks and the value of proper corporate governance — but underpinning their understanding of these factors is the ever-increasing flow of information, data and guidance.
In a recent Pensions Expert Twitter poll, respondents were asked who they listen to the most for guidance on ESG matters. A preference to listen to other industry peers came out on top, outperforming the guidance of asset managers, consultants and industry bodies.
If the industry isn’t yet able to agree on how to measure the required range of environmental and social outcomes, then it’s very difficult to assess investments and communicate worthwhile targets and successes
Callum MacDougall, Engine MHP
Peer power
This result did not come as a surprise to Alistair Byrne, head of retirement strategy at State Street Global Advisors, who says the topics of environmentalism and social agendas are permeating the conversations among industry peers and steering the direction of the sector.
Byrne says leaders need to take note of the discussions happening throughout the pensions world as the views of members, trustees and stakeholders will “evolve over time in response to developing issues”. Asset managers and pension providers must consider how these evolving views — separate from boardroom-level discussions — should be reflected in their strategies.
However, an overreliance on guidance from peers’ risks “creating an echo chamber”, says Calum MacDougall, account director at PR company Engine MHP, but looking further afield to different geographies and scales may help alleviate this risk.
“If the industry is too inward-looking, it will fail to innovate quickly enough to meet the demands of an increasingly connected, tribal and informed set of stakeholders,” MacDougall says.
Top-down messaging
While the respondents’ preferences seem to lie with their peers, the volume of information, research and guidance coming from leading financial organisations is substantial and characterises many of the discussions that occur within organisations, the press and social media.
To facilitate this, the financial services sector employs a vast army of communications professionals to add value to their messages in an attempt to convey ideas and arguments effectively.
The results from the poll suggest these efforts are falling on disinterested ears, however. While the guidance may come from the top, our findings suggest industry professionals want to hear it from elsewhere.
A primary reason for this lack of engagement with corporate and industry communications is the credibility and reliability of ESG claims and shortcomings in associated data practices.
Dafina Grapci-Penney, managing director of financial communications company Greentarget, notes that scrutiny of the claims made by financial organisations has increased, in part due to data concerns and a lack of standardised definitions.
“The best way to address increased scrutiny is transparency,” she argues, “and this comes from bringing a degree of standardisation to the industry to allow investors and companies to compare in a meaningful way how firms approach their commitment to ESG”.
Likewise, Engine MHP’s MacDougall says data is the “fundamental issue” in properly communicating ESG action.
He adds: “If the industry isn’t yet able to agree on how to measure the required range of environmental and social outcomes, then it’s very difficult to assess investments and communicate worthwhile targets and successes.”
MacDougall says a willingness to create a more informed debate must be central to efforts around ESG communications, and in the absence of a consensus in data, definitions and metrics, progress must be made through “increased transparency”.
Industry insight
While some may say the reliance on peer-to-peer information sharing devalues the content at hand, the professionalism, insight and expertise of the pensions industry is a breeding ground for new ideas and notions of best practice that can drive future guidance, Grapci-Penney notes.
“I think each industry is best placed to come up with its own standards and criteria for what constitutes adherence to ESG principles,” she says. “They know their clients best and they know what taxonomy works.”
She adds that professionals from across the pensions industry have the insight and experience to consider the nuances required to foster meaningful debate and discussion on ESG factors. So much so, that regulators and legislators need to recognise the “key role” industry professionals are to play in defining the ESG frameworks of the future.
Green bonds and greenwashing: Investors yet to be convinced
After new details about UK’s first sovereign green bonds were received positively by the pensions industry, the excitement seems to be dissipating, since the summer 2021 launch date will be missed and scepticism remains about the motives and effectiveness of the scheme.
“Regulation can then bring in standardisation and mandate the collection of data into meaningful information for investors,” a movement that will facilitate a more transparent and impactful industry, Grapci-Penney points out.
Just as the ESG sector evolves, so too does the need for messaging to remain current, accessible, and relevant. Central to this, says Grapci-Penney, is storytelling and the fusion of quantitative and qualitative elements — a “hearts and minds” approach.
Whether the preference for peer-based guidance will hold firm as the ESG sector matures is yet to be seen, but what is apparent is the need for clear messaging to run parallel to transparent and accessible data. Until then, Twitter will suffice.
