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The Actuary The magazine of the Institute & Faculty of Actuaries

ESG interest surges among pension trustees

There has been a surge in pension fund trustees engaging with environmental, social and governance (ESG) issues in the UK, research by KPMG has uncovered.

ESG interest on the rise ©iStock
ESG interest on the rise ©iStock

The firm’s 2019 UK Fiduciary Management Survey found that 98% of the trustees polled were engaging on ESG matters with their fiduciary managers, up from 58% last year.

However, the findings also show that few trustees are designing bespoke policies, and that many are heavily guided by their fiduciary manager’s default position.

A massive 87% have conducted no more than a “light touch review” of ESG, only 10% have “thought about it carefully”, and just 1% have taken bespoke action.

“It’s encouraging that ESG factors are now firmly on the agenda for trustees and investment committees,” KPMG head of fiduciary management research, Anthony Webb, said.

“However, we’ve seen little evidence of changes to behaviour. Most schemes undertake ‘light touch reviews’, whereas designing and implementing bespoke policies could lead to real action.”

The research also identified growth in the fiduciary management industry, with the total number of mandates increasing by 10% to 946 over the 12 months up to 30 June.

KPMG said the expansion means that total assets under fiduciary management have reached £172bn this year, up 21% from the £142bn recorded in June 2018.

It was also found that 63% of schemes using fiduciary managers have less than £100m in assets, while 22% have £100m to £250m, and 3% have assets totalling over £1bn.

When asked about their ‘end game’ plans, nearly half of fiduciary managers said they would look for a buyout, while just over a third suggested a run-off.

"The sizeable boost in assets under management is significant, but helped by rising gilt values and high levels of liability hedging," Webb continued.

"We believe that the recent Competition and Markets Authority (CMA) investigation has held back mandates.

"We also expect next year’s survey to capture a surge in tenders as some early adopters are required to go back to the market and retender to meet the CMA’s requirements."

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