“How can schemes make ESG compliance meaningful?“
that’s the question Angus Peters of FT’s Pension Expert asked his readership. It may not sound the snappiest of headlines but here’s what followed and after spending yesterday afternoon at the launch of Making My Money Matter, I’m pleased to hear a journalist speaking with some conviction.
The UK pension industry’s first attempt at compliance with new sustainability reporting rules has left campaigners unimpressed, to say the very least.
Two-thirds of pension schemes in the UK failed to even submit their revised statements of investment principles, required to outline positions on environmental, social and governance risks, by the October 2019 deadline.
Analysis of their content by the UK Sustainable Investment and Finance Association suggested heavy use of boiler-plate statements drafted by consultants, and the organisation called the regulator’s response “as vague as trustees’ statements”.
How do we get beyond compliance?
The change that is needed is in the mindset of trustees who still see their job as managing the scheme to the rules. The rules say you minimize risk and so you don’t take the risk of embracing ESG as the guiding principles of your scheme. You do the minimum required to comply with the law and that means boiler-plate statements that nobody reads.
Yesterday Make My Money Matter launched a campaign to get some intention into pensions. On its website are two templates, one addressed to employers, another to pension providers, there should be a third , to trustees. Because despite the noise about workplace pension £2trn of the £3trn in UK pensions is under the control of trustees and committed to paying defined benefits.
I’m getting in touch about my company pension. I’d like to know what impact our pension investments are having, and if that impact is aligned with our organisation’s values?
Through our pension fund we could be investing in things like fracking, arms, and tobacco. I think it’s important we find out if this is the case.
Can you tell me where our company’s pension fund is invested and what it’s doing for the world? And could you let me know what alternative options might be available to us to make sure our pensions are helping create a world we want to retire in to?
If you’d like to find out more about how we could have this conversation please visit Make My Money Matter.
I appreciate your support and hope this conversation will lead to our organisation having a pension we can all be proud of.
In Pensions Expert, Stuart O’Brien of Sackers explicitly mentions Make My Money Matters. Commenting on the failure of many trustees to talk with scheme members about what the trustees are doing, he says this reticence to give members the full picture extends even to schemes that are leading the market in terms of what they actually do:
“There’s a surprising amount of nervousness around putting information out there for members.”
Cautioning schemes to embrace transparency before it is forced upon them, he adds:
“There’s a risk here that if trustees don’t start being more transparent with members, we’re going to have organisations like Make My Money Matter putting pressure on them to do more. Some of that pressure might be well-intentioned, but not necessarily appreciate the environment within which trustees operate”.
As the “G” in ESG stands for “governance”, perhaps it would be in the trustee’s interests to help them understand this environment. Maybe I’m being naive but I thought the direction of travel of the Pension Schemes Bill was directly aligned with the direction of travel of Make My Money Matters.
While I appreciate that ESG can create conflicts between employers and trustees and that sponsors need to have a say in the management of scheme assets, I do not see why these conversations should not be explained to members.
Rather than fearing MMMM, trustees could be reaching out to them. Rather than worrying about receiving emails using the template above, they should be sending out requests to members asking them to look at https://makemymoneymatter.co.uk/make-a-change/
Indeed the chair of trustees of HSBC, Russell Tricot, was featured in yesterday’s launch and he spoke feelingly of the trustee’s duties. HSBC’s staff scheme, we should remember, has fully embraced the principles of ESG and is largely responsible for the FutureWorld fund run by L&G.
Make Members Money Matter
We are in no ordinary times, we can go two ways. Either we can lock down or look up. Locking down into the old ways of investment risks missing a chance to engage with members on the management of their money. All the research suggests that ESG clearly matters to people when properly explained.
Trustees have the opportunity to reach out to popular movements such as MMMM or to react to them.
I urge trustees to go to Make My Money Matter and make a pledge
Henry, you’ve hit the nail on the head: the fundamental challenge is overcoming compliance, because that all too often means, as you say, boiler-plate statements that nobody reads. Of course, it’s more like £3 triliion than £3bn, so there’s a lot at stake!
thanks – typo corrected!