The process to true ESG integration can be long, complex and difficult for pension schemes - which is why TwentyFour Asset Management has re-aligned its investment thinking to help schemes on their sustainable journey goals. Alistair Wilson, partner and head of institutional business at TwentyFour, explains.
ESG integration is a complicated and time-consuming process, and fund managers play a key role in helping pension funds on this journey.
October 2021 will see the introduction of new, stringent reporting requirements on climate change risks for large pension schemes across the UK. With over £1.3trn of assets held in occupational pension schemes across the UK, it is no wonder the UK government sees pension funds as a key player in the transition to net zero in particular.
For pension scheme trustees, the rules create new complexities when it comes to their investment strategies and unsurprisingly, some are struggling to comply with new requirements. According to a survey conducted by consultancy EY earlier this year, the majority of UK pension schemes (71%) are yet to consider the impact ESG factors have on their sponsors' covenants, while just 12% have a finalised strategy in place to address and report on climate risk.
Working together
This is where asset managers can step in to support pension fund trustees in meeting their climate obligations. For bond specialist TwentyFour Asset Management, this is becoming an increasingly integral part of its work with pension fund clients in 2021.
Alistair Wilson, partner and head of institutional business at TwentyFour, expects ESG integration to be an area where pension trustee will rely on their fund managers to "do the heavy lifting".
"We used to talk about people, process and performance, but today ESG is the single biggest factor we discuss in meetings with trustees and consultants," Wilson says. "It's such a big topic for pension schemes today. The larger ones particularly are being very proactive, but they are still looking for the fund managers to come up with the solutions."
At TwentyFour, the aim is to offer pension trustees investment products they are comfortable investing in both on ESG grounds, but also terms of their return expectations. Wilson explains it is a "balancing act" between ESG with investment objectives. This means finding the sweet spot where "the investment universe is still wide enough for us to do our job, making sure volatility is within reasonable levels, while still meeting core investment objectives", he says.
However, he cautioned that burdening pension trustees with such information is not the way forward. "Transparency, but relevancy, is so important. You can throw rafts of reports at trustees, but it just makes it meaningless," he explains.
To read the full article and hear more from TwentyFour Asset Management in our exclusive Focus guide on how they are working with pension trustees and consultants to help them achieve their ESG goals click on the button below.
