Trade bodies urge trustees to hold investment consultants to account on ESG issues

Polar-bears-walking-on-melting-ice-showing-climate-change-700.jpgThe Association of Member Nominated Trustees and the UK Sustainable Investment Association have urged pension funds to keep an eye on whether their investment consultants’ sustainable investment advice lives up to the minimum service requirements under regulation.

The AMNT and UKSIF says consultants should meet minimum requirements as soon as possible so as not to risk losing clients wishing to meet new regulatory expectations.

Investment consultants must give advice to their trustee clients on considering material environmental, social and governance issues in their investment process, according to new rules.

In June 2017, the two trade bodies gathered public commitments from sixteen major investment consultancy firms, representing about 85 per cent of UK market , to follow The Pensions Regulator’s guidance on reporting ESG issues to their client base. 

Eighteen months on, today the AMNT and UKSIF have published a report, which looks at the progress made by the 16 firms in meeting their commitment.

The AMNT and UKSIF have found the willingness of firms to respond to help trustees “very encouraging”. However, it noted there is work to be done in the space and has come up with guidelines for both trustees and their consultants.

The monitoring found that the majority of firms provided a training programme on ESG for their clients. Similarly, most of the firms either created or updated their existing ESG training programmes for their employees. Some included ESG topics in board meeting agendas.

However, the trade bodies concluded that in terms of client outreach, very few consultants provided numbers to substantiate the scale and impact of their responsible investment efforts.

AMNT and UKSIF’s list of minimum services that trustees should expect  from their consultant

  • Development of trustee ESG beliefs
  • Development of ESG policies, including stewardship (or integration of ESG considerations into existing policies), with regard to statement of investment principles revision/preparation
  • Regular training programmes at board level on ESG issues
  • Integration of ESG considerations across asset classes
  • Helping trustees to embed ESG considerations into their internal governance mechanism, including non-investment areas (e.g. risk registers)
  • Manager selection, appointment and monitoring processes on ESG issues
  • Support in internal or external reporting requirements on ESG issues
  • Inclusion of ESG into regular trustee board communications

AMNT co-chair Janice Turner says: “The investment consultants are key to enabling trustees to fulfil the new requirements. In our view, the new regulations, in effect, oblige any consultant of integrity to ensure their clients have the information and guidance in this regard that they should be entitled to expect from their professional adviser.”

“By working with UKSIF to create a coalition of consultants that will recognise this, our intention is ensure that our members are given the professional support that they need.”

UKSIF Simon Howard chief executive says:”It is essential that everyone in the pensions value chain reacts to support the thousands of trustees who must deal with these welcome regulatory changes.”

As was the case last year, helping pension schemes protect the assets of their beneficiaries from clearly recognizable threats such as climate change remains core to the work of UKSIF members.

AMNT and UKSIF’s suggestions for investment consultants’ internal governance arrangements to meet the minimum requirements regarding ESG advice

  • Evidence of demonstrable leadership from the top of the organisation which shows notable outputs at the field consultant level, and which includes public transparency and accountability for the firm’s ESG approach.
  • Compulsory regular training (for both new and existing personnel) in formats that demand feedback and engagement as opposed to inclining to passivity
  • Regular evaluation of training effectiveness and senior management leadership on ESG

Brunel Pension Partnership chief responsible investment officer Faith Ward says:  “We are seeing a growing differentiation in the investment consultant market between those who demonstrate they can support their clients on the integration of ESG and those who do not.”

Redington head of responsible investment Honor Fell adds: “ESG is an area where best practice and sophistication of advice is advancing rapidly – advances in data availability and the technology to make use of this data is underpinned by an increased regulatory emphasis.”

“We welcome the review of investment consultants by UKSIF and AMNT and in particular the collaborative approach they have taken in aiming to improve the advice given to pension fund trustees in this area.” 

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