The Investment Consultants Sustainability Working Group (ICSWG) has set up a new workstream that will be working with regulators and policymakers to help enable pension scheme trustees to be freed from ‘tick box’ exercises and focus on making more impactful decisions that will boost sustainable investment and enhance scheme members’ outcomes.
ICSWG brings together UK investment consulting firms seeking to improve sustainable investment practices across the investment industry.
The group noted that much of the sustainability regulation and policy for UK pension funds has been focused on reporting. There were initial benefits as pension trustees and their advisers increased their focus on, and understanding of, sustainability matters in order to be able to produce the reports.
However, it said that the benefits have diminished as the reporting has become more routine.
ICSWG pointed out that the reporting is quite burdensome, adding that regulations have unintentionally led many trustees to spend most of their sustainability time and budgets on compliance-focused activities. It said this means trustees have less time to consider actions they can take to improve member outcomes.
The ICSWG is also concerned that many actions taken are more about “paper portfolio compliance”, such as decarbonising by selling high-carbon assets, rather than creating real economic changes in behaviour.
It said that this approach fails to address the actual sustainability issues that pose risks to members’ benefits. Instead, the working group wants to see more trustees making impactful decisions that drive a more sustainable economy from both social and environmental perspectives.
The workstream will initially focus on three key policy areas. This includes simplifying, reducing and harmonising reporting requirements and regulatory burdens, enabling trustees to spend more time on impactful actions.
It will also focus on removing barriers to action or encouraging action that supports the full range of sustainable investing, across public and private markets.
Lastly, the workstream will focus on reducing barriers and incentivising allocations to productive finance opportunities that help drive a more sustainable economy from both social and environmental perspectives.
Claire Jones, workstream chair, as well as partner and head of responsible investment at LCP, said that pension fund regulations should go beyond just reporting on sustainability and should instead encourage true and impactful change.
Iona Young, workstream member and sustainable investment consultant at Isio, added: “We believe that managing the burden of regulation and reporting is crucial to enabling more schemes to focus their sustainability efforts where they are most impactful.
“The ICSWG is working to simplify the regulatory landscape whilst putting real world outcomes at its centre, through collaborating across the industry with regulators and policymakers on behalf of schemes and their members.”