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The Actuary The magazine of the Institute & Faculty of Actuaries

ESG regulations a ‘tick-box exercise’ for UK pension schemes

UK pension schemes are treating new environmental, social and governance (ESG) rules as a “tick-box exercise”, the Society of Pension Professionals (SPP) has warned.

Pension schemes ignoring members' environmental concerns ©Shutterstock
Pension schemes ignoring members' environmental concerns ©Shutterstock

Regulations introduced last October require private pension schemes with over 100 members to consider ESG factors when making investment decisions.

However, a poll of SPP members found that 38% believe their clients have made no changes to investment portfolios, despite updating their statements of investment principles (SIPs).

Just 2% of pension professionals said the new rules had made a material change to portfolios, although 57% said their clients are now showing a genuine interest in ESG.

“Respondents are seeing clients only reacting to the regulatory change as a tick-box exercise, solely making changes to the SIP to comply,” the SPP said in a report.

“It is, admittedly, early stages for many schemes, and having reflected their ESG stance in the SIP, it may take some time to see that through.”

When asked what is driving changes to ESG strategies at pension schemes, 65% of the survey respondents said that either the government or regulator was most influential.

Almost 22% cited the general public as the primary influencer, compared to just 5% for scheme members, which may reflect a lack of awareness among members about their potential impact.

A whopping 82% of respondents said they believe less than a quarter of schemes have sought members’ views on ESG, while none said they think over 75% have done so.

Moreover, two-thirds said that defined contribution schemes above a certain size should be required to offer a range of ESG funds suitable at different stages of a members’ life.

“It seems perverse for the actions of a pension scheme to be influenced more by the general public, to whom it has no duty, as opposed to its members, to whom it has a legal responsibility,” the SPP said.

"The pension industry appears to be reacting to regulatory and government pressure, as well as to public opinion to some extent, rather than driving the ESG agenda.

"In the short-term, the regulatory regime is essential to ensure that ESG is a long-term change and not just a short-term flurry of activity."

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