The Investment Consultants Sustainability Working Group (ICSWG) announced the launch of a new guide, aiming to enable pension scheme trustees to assess the climate competency of their investment consultants.

ICSWG was formed in September 2020, and now consists of 17 leading UK consulting firms, aiming to improve sustainable investment practices across the investment industry.

UK pension schemes are facing increased regulatory requirements and scrutiny regarding climate-related investment risks and disclosures. Last week, for example, the Department for Works and Pensions (DWP) released the results of its consultation regarding plans for new climate risk disclosures from pension schemes, which will require TCFD-aligned reporting in the near future by most schemes.

 According to the group, the new guide, developed with input from ShareAction, The Pensions Regulator and the PRI, was created in response to the 2020 Pensions Climate Risk Industry Group (PCRIG) consultation, which recommended that pension scheme trustees require their investment consultants and asset managers to demonstrate climate competence.

The ICSWG stated that the guide sets out five themes against which trustees should expect their investment consultants to demonstrate their climate competency, including firmwide climate expertise and commitment; individual consultant climate expertise; tools and software (to support climate-related risk assessment and monitoring); thought leadership and policy advocacy, and; assessment of investment managers and engagement with them.

Luba Nikulina, of Willis Towers Watson and co-Chair of the ICSWG said:

“The indicators are deliberately stretching with the aim of raising investment consultants’ standards and it should be acknowledged that some of these indicators will be aspirational. However, this is an important step towards developing good practice and practical guidance for schemes, in particular those seeking to align with the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD).”

Brian Henderson, of Mercer and the ICSWG’s Regulation team added:

“We are pleased to have developed the climate competency framework to help deliver better outcomes for our clients. The framework illustrates areas where clients can hold consultants to account in terms of their competency in supporting evidence-based climate change related decisions. It is important that pension scheme trustees ask their consultants and asset managers to demonstrate a best practice approach to climate competence. We are already in the decade of transition and to deliver returns for our clients we need to understand the risks and opportunities that the transition will bring. The framework is a step in the right direction and we look forward to the value it will add to our industry.”