UK-based Pension policy focused educational, independent research organisation Pensions Policy Institute announced today the publication of a new report, Engaging with ESG: Climate Change, exploring the way in which pension scheme investment takes into account climate change within the current regulatory landscape. The report, sponsored by long-term savings and retirement business Phoenix Group, explores the proposals for more effective support to encourage evolution and improved risk mitigation.

The report finds that a coordinated approach to strategies and data sources across government and industry will improve scheme engagement with climate change, specifically highlighting several key areas for improvement. Specific proposals include establishing a consensus on goals and the practical steps needed to achieve them across all stakeholders, placing a greater focus on engagement and stewardship activities to ensure that companies across the board are making progress towards climate change goals, encouraging innovation from third parties to provide products and strategies that meet needs in integrating climate change risks, as well as improving the data provided to schemes, and improving scheme decisionmakers’ knowledge and understanding of climate change across the industry. In addition, the report proposes establishing a centralised data source which can provide a starting point for schemes that are unsure where to start or are overwhelmed by the quantity of data available.

Lauren Wilkinson, Senior Policy Researcher at the PPI said:

“Focus on ESG has increased in recent years and the landscape for climate change investment especially has been developing quickly. Policy and regulatory change are also putting further pressure on schemes to learn and innovate. Schemes may need to take a more proactive role in engaging with those acting on their behalf, including pension providers and asset managers. A more joined-up approach across government and industry, especially in terms of practical steps, is also likely to be needed.”

Michael Eakins, Chief Investment Officer, Phoenix Group, added:

“What is clear from this report is that there is no easy or quick fix to the issues we face. Both industry and government must work hand in hand to establish a consolidated strategy, with simpler, centralised data sources. This lack of a harmonised reporting process is proving to be a substantial barrier to improving the effectiveness of risk mitigation in schemes’ investment strategies.”

The report also finds in addition to climate change, other ESG factors need improvement in order to support sustainability and mitigate risks, particularly when it comes to scheme oversight and understanding of engagement and stewardship behaviours.

Gareth Trainor, Head of Investment Solutions at Phoenix Group, added:

“On ESG, we risk both too much, and too little leadership. There are many industry groups, regulations, initiatives, and competing propositions to consider, and the industry needs to get its ducks in a row. The ecosystem needs to be simplified for pension schemes and their members.”

Click here for access to the Pensions Policy Institute report.