Our Time for Action: UK Pension Schemes’ Journey to ESG report draws on data gathered from Mercer’s Responsible Investment Total Evaluation (RITE) analysis of more than 650 UK occupational pension schemes. It shows ESG is being taken seriously with 98% of trustees believing ESG issues can have a material impact on financial returns.
But, like the rest of the financial industry, pension schemes are playing catch-up in a complex environment that is constantly evolving.
This report breaks the ESG journey down into four steps based on Mercer’s Sustainable Investment Pathway.
Individual trustees may have diverse and strongly held beliefs - but RITE found that fewer than half of trustees had carried out an ESG beliefs survey or workshop in the past three years to help them come to a common view. RITE also showed that resources do not always dictate actions, with some smaller and midsize schemes having made more progress in their ESG journey than larger ones.
Schemes have been required to include ESG and stewardship policies in their Statement of Investment Principles since 2019 but RITE found that few had moved beyond this first step. For example, just 10% of schemes have developed a standalone policy related to responsible investment, ESG or sustainability. Meanwhile, company boards are examining their pension schemes as they adopt ESG practices but fewer than one in four schemes has sought to align with the principles of their sponsor company.
RITE found almost two-thirds of schemes had adopted some measures for integrating ESG into their processes but others have work to do to ensure their assets are invested in line with their beliefs. Most schemes do not carry out regular assessments of asset managers’ stewardship records. Few schemes have conducted analysis of carbon intensity and climate change scenarios but this will become a more pressing matter.
Portfolio is where intention turns into action - but RITE’s analysis shows fewer than 40% of DC schemes include an ESG fund in their default strategy and roughly half of schemes make these funds available to members who self-select. This leaves tens of billions of pounds in pension savings without explicit exposure to ESG funds. For DB schemes, fewer ESG options mean less participation but there is a growing focus on developing sustainable fixed income products.
Integrating ESG is a monumental challenge for UK pension schemes that they cannot undertake alone. Our report concludes with a series of recommendations for stakeholders, including the government, regulators, asset managers and advisers, to help them fulfil this goal.
We’ve taken the RITE analysis of over 650 schemes and split it 25 groups, allowing you to search by scheme type and size, or by the industry sector the parent company works in. So whether you have a defined benefit scheme with less than £100m of assets under management, or a DC scheme with over £5bn, or whether your parent company operates in the utilities or the financial sector, you can see the RITE benchmark set by schemes like yours.
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