Climate Change, ESG Rising up Agenda for UK Pension Funds

Almost two thirds believe UK pension funds should be used to help tackle climate change and other ESG issues, according to new PLSA survey.

Decision-makers at UK pension funds increasingly believe they have a key role to play in tackling climate change and other ESG-related issues, with many viewing these as the most important considerations for the sector over the next five years.

According to a survey conducted by the Pensions and Lifetime Savings Association (PLSA), 64% of senior executives at UK pension schemes agreed that pension funds should be used to help tackle climate change and other ESG issues. Asked why, around a third (32%) cited the importance of climate risk to society, while slightly more than a quarter (27%) noted the potential returns from investing in firms addressing climate change and other ESG-related issues.

Further, 36% of survey respondents expected climate change and ESG investment to be the most significant issue for workplace pensions over the next five years. This made it the second most important issue for the industry behind consolidation, cited by 48%.

Since October 2019, trustees of pension schemes with more than 100 members have been required to outline their approach to engagement and voting in investee companies, as well as including ESG and climate change considerations in their investment decision making. By 2022, the 100 largest UK occupational pension schemes will be required to publish climate risk disclosures using Task Force on Climate-Related Financial Disclosure (TCFD) standards.

Seven in ten PLSA members consider UK pension regulation to be too burdensome. Over the next three years, the Defined Benefit Funding Code of Practice (27%), the change from RPI to CPIH for inflation measurement (16%) and ESG rules (14%) are the regulatory initiatives expected to have most Impact on UK pension schemes.

The survey also revealed that three quarters (76%) of PLSA members do not expect UK economic growth in the next 12 months, with only 53% predicting the economy to grow in the next three years. A third of survey respondents (33%) said they were concerned coronavirus would lead to a drop in pension contributions, due to an increase in company failures and a reduction in employment security.

The survey, released to coincide with the PLSA’s annual conference, interviewed 129 members during August. Respondents were typically senior scheme representatives, e.g. CEOs, heads of pensions, directors etc, and more than half work at schemes with more than £1 billion assets under management.

The PLSA represents UK defined benefit, defined contribution, master trust and local authority pension schemes which collectively provide retirement income to more than 30 million UK savers.

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