Firms urged to rethink sustainability approach
Professional Pensions Live in London featured a panel discussion where Kerry King, executive director of capital markets at Accounting for Sustainability, emphasized the need for a “more tailored approach rather than box-ticking exercises” in sustainability. She believes this will “really help outcomes”.
King noted that trustees should ask what decisions actually mean, highlighting the importance of being aware of misalignment between scenarios and modelling.
Louise Davey, Independent Governance Group trustee director and head of policy and external affairs, also spoke on the panel, stressing that trustees must “really focus on governance and ask the right questions to managers and be thorough and document approaches”.
Davey warned that while most trustees accept climate change will affect the economy and portfolios, they often overlook who is financially detrimentally affected. She identified “a gap in how to deal with that”.
Davey urged schemes to “be specific” about why they are or are not taking certain actions, as well as document governance and ensure it is “robust”. She also noted that defined benefit considerations differ from defined contribution (DC) due to the “more scope in DC to think more creatively”.
According to Davey, DC is where greater scale is seen, “which brings more options”. However, she acknowledged that there are “challenges and different questions [to be asked] depending on demographics of schemes”.
Kerry King noted that pension funds “have a significant role in ensuring their providers are aligning to the mandate and ensuring decisions they make are aligning to the long-term objectives” of the scheme. The Taskforce on Climate-related Financial Disclosures (TCFD) project has been a topic of discussion, with some questioning whether the reporting requirements should be phased out.
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King argued that TCFD has been given a “bad rap” and that while some “unintended consequences” have arisen, it “was a significant factor in getting climate risk as a financial risk recognised”. Davey suggested that the structure of TCFD is not the issue, but rather progress has been driven by technology rather than policy, with change happening because “things have got cheaper rather than policy change”.
One aspect that has been overlooked is the impact of sustainability efforts on the people most affected by them. For instance, when schemes make decisions about investments, they should consider how these choices will affect their members, taking into account factors like demographics and financial situation. This kind of consideration can help ensure that sustainability efforts are effective and equitable.
Davey added that the industry needs to do more planning around supply and distribution risks, and that voting and engagement “needs to reflect real world change”. The importance of considering the perspectives of all stakeholders, including scheme members and providers, was also emphasized.
Pension systems face an urgent need for reform, as seen in the need for pension reform to address the challenges posed by climate change.
The discussion highlighted the need for a more effective approach to sustainability reporting, one that moves beyond box-ticking exercises and focuses on meaningful outcomes. As the industry continues to evolve, it will be important to consider the perspectives of all stakeholders, including scheme members and providers.
The TCFD project has played a significant role in recognizing climate risk as a financial risk, and its impact will likely be felt for years to come. Kerry King noted that pension funds have a significant part to play in ensuring that their providers are aligned with their long-term objectives, and this role is essential for effective sustainability reporting.
It is essential to consider the impact of investments on scheme members.