Pension fund survey shows growing recognition of the material importance of ESG factors
18 December 2015
The Pensions and Lifetime Savings Association has published the 2015 edition of its annual Stewardship Survey1 looking at the ways in which pension funds engage with their investments in order to achieve the best possible returns.
Respondents were in almost unanimous agreement (93%) that Environmental, Social and Governance (ESG) are material to investment returns, a slight increase from 90% in 2014 and significantly up from 81% in 2013, reflecting the heightened interest in stewardship and ESG issues amongst investment analysts and researchers, and investors in turn beginning to take heed of this evidence.
There is near universal agreement among respondents that pension funds have stewardship responsibilities, with the total that agree and strongly agree up to 98% from 94% in 2014.
Over a third (37%) of pension funds reported that stewardship was regularly discussed at trustee meetings, which might seem low, but this proportion has risen significantly over the last four years (17% in 2012).
A majority (63%) of respondents said they question potential managers about their approach to stewardship as part of the selection process, and nearly half (47%) said they include specific stewardship criteria in their ‘Requests for Proposals’ (RFPs).
Over two thirds (68%) of pension fund respondents said they set out stewardship responsibilities in their mandates to investment managers – up from 51% in 2014 and a notable increase from just 38% in 2013. Whilst it’s too soon to identify a definitive trend, this evidence is a useful insight for asset managers on what pension funds expect from them.
On the other hand, fewer than a third of respondents (29%) (30% in 2014) said that their investment consultants raised stewardship issues with them in discussions, which suggests that some pension funds risk not getting appropriate advice.
Similarly, whilst the majority (72%) of pension funds were quite satisfied with the standard of stewardship reporting from their investment managers, only 9% of pension funds said they were very satisfied. When thinking about how reporting could be improved, the majority (55%) suggested that reporting should focus on integrating stewardship into more general reporting on investment performance.
When looking at institutional investors as a group, whilst the majority of pension funds (58%) agreed somewhat they were ‘active enough’ stewards, fewer than one in ten (8%) strongly agreed.
Luke Hildyard, Policy Lead: Stewardship and Corporate Governance, Pensions and Lifetime Savings Association, commented:
“The near universal levels of recognition of the importance of stewardship and the widespread acceptance of the principles of ESG are encouraging. It’s perhaps a testimony to the success of initiatives such as the introduction of the Stewardship Code in 2010, the increasing body of research in this area and shareholder activism campaigns. It may also suggest that in the aftermath of the Volkswagen scandal and ongoing debates around factors such as climate risk or human capital, the profile of ESG issues is rising.
“The Pensions and Lifetime Savings Association has also been instrumental with a range of activities including the introduction of the Stewardship Disclosure Framework in 2013 and the launch of the Stewardship Accountability Forums in 2014.
“At the same time however, there are some findings in this survey that should prompt contemplation rather than congratulation. So it’s vital that pension funds ensure they have meaningful policies on stewardship, supported by concrete performance indicators, and regularly monitor the implementation of these policies through dialogue with and scrutiny of their asset managers.”
1Respondents were 60 UK pension funds with a total of at least £260bn worth of assets under management.