• When designing their approach to ESG, the new research shows that half of pension schemes find either too much information or conflicting information to be a barrier to success
• Phoenix calls for industry bodies to step forward and take the lead, so best practices around ESG can be harmonised

A report sponsored by Phoenix Group and published by the Pensions Policy Institute (PPI) today, has found that when pension schemes design their approach to ESG, half of schemes are finding either too much information or conflicting information to be a major challenge.

The landmark report, called ‘Engaging with ESG: Climate change’, explores the way in which pension scheme investment takes into account climate change within the current regulatory landscape, and explores the proposals for more effective support to encourage evolution and improved risk mitigation. The report is the second output in the Engaging with ESG series from the PPI.

The PPI report recommends that joined-up goals, strategies and data sources across government and industry will improve scheme engagement with climate change. This includes establishing a consensus on goals across all stakeholders to ensure climate change considerations are integrated across the investment landscape by a certain date and agreed steps on how to get there. There is also a focus on the need to produce a centralised data source which can provide a starting point for schemes unsure of where to start.

Michael Eakins, Chief Investment Officer, Phoenix Group, said: “What is clear from this report is that there is no easy or quick fix to the issues we face. Both industry and government must work hand in hand to establish a consolidated strategy, with simpler, centralised data sources. This lack of a harmonised reporting process is proving to be a substantial barrier to improving the effectiveness of risk mitigation in schemes’ investment strategies”.

The report also finds that while climate change has received substantial focus and some schemes are doing a lot in this area, other ESG factors need improvement in order to support sustainability and mitigate risks. The rapidly changing regulatory environment is pushing more schemes to consider climate risks in their investment strategies, but improvements are needed particularly when it comes to scheme oversight and understanding of engagement and stewardship behaviours.

Gareth Trainor, Head of Investment Solutions at Phoenix Group, added: “On ESG, we risk both too much, and too little leadership. There are many industry groups, regulations, initiatives, and competing propositions to consider, and the industry needs to get its ducks in a row. The ecosystem needs to be simplified for pension schemes and their members.

“Although many pension schemes, advisers, asset managers, trustees and providers are doing a good job at incorporating ESG risks into their strategies, we believe that it is time for industry bodies to pool their collective capabilities and lead the sector by harmonising what best practice looks like. Now is the time for industry bodies to step forward and take the lead so that practices around ESG can be standardised across the industry, including reporting, methodology, metrics and engagement.

“Given the complexity of the stakeholders within the market, and the various types of schemes and arrangements, it is difficult for pension schemes and trustees to stay on top of what is a very complex issue and to be clear on roles and responsibilities. It’s particularly challenging for smaller schemes. We believe industry bodies could help to clarify what is needed for all parties in the value chain.”

Lauren Wilkinson, Senior Policy Researcher at the PPI said: “Focus on ESG has increased in recent years and the landscape for climate change investment especially has been developing quickly. Policy and regulatory change are also putting further pressure on schemes to learn and innovate. Schemes may need to take a more proactive role in engaging with those acting on their behalf, including pension providers and asset managers. A more joined-up approach across government and industry, especially in terms of practical steps, is also likely to be needed.”

This report is the second of three publications in the Engaging with ESG series, following the publication of Engaging with ESG: The story so far in December 2020, to be followed by a third publication on ESG risks in April 2021.

ENDS

Enquiries

Rachel Esland
PR and Public Affairs Manager
Phoenix Group
0131 245 0489 / 07892 705093
rachel.esland@thepheonixgroup.com

Monica Martin Roig
Consultant
Lansons
0207 566 9743 / 07949 689524
MonicaMR@lansons.com

Dilesh Sangaran
PR Manager
Phoenix Group
07974 604323
Dilesh.sangaran@thephoenixgroup.com

Notes to editors’

About the research

The report uses data from the PPI’s Engaging with ESG Survey 2020. This was carried out in November 2020 and sought to gather insight on the approaches being used by schemes in order to take account ESG risks, as well as the challenges they may have faced along the way. The survey was open to responses to both schemes and third-parties and there were 62 responses.

The report also draws upon qualitative interviews carried out with a broad range of stakeholders across the industry.

About Phoenix Group

Phoenix is the UK’s largest long-term savings and retirement business, and the largest consolidator of closed life and pension funds in Europe.

Phoenix has businesses in the UK, Germany and Ireland, split across three key business segments: UK Heritage, UK Open and Europe.

The Group specialises in the acquisition and management of closed life insurance and pension funds (its Heritage business). Phoenix is a leader in the safe and efficient management of UK Heritage business. The UK Heritage segment comprises products that are no longer actively marketed to customers and has been built through the consolidation of over 100 legacy insurance brands.

In addition, Phoenix’s UK Open business manufactures and underwrites long-term savings and retirement products to support people saving for their future. These products are actively marketed to new and existing customers, primarily under the Standard Life brand. This segment is underpinned by a strategic partnership with Standard Life Aberdeen following the Phoenix Group’s acquisition of Standard Life Assurance Limited in 2018. Standard Life Assurance is a long-established expert in workplace pensions, personal pensions, long term savings and retirement solutions, and its customers and clients include individual savers and some of the largest employers in the UK, as well as professional advisers. The UK Open business includes a growing BPA business. Phoenix Group also has a market leading brand - SunLife - which sells a range of financial products specifically for the over 50s market.

The European business spans a range of both Open and Heritage products across three segments: Ireland, Germany and the International Bond in the UK. Our focus is on protecting our existing assets, optimising sales and driving efficiencies, which enables us to maximise value in these businesses and provides a platform for potential future consolidation in Europe.

Phoenix Group is a member of the FTSE 100 index, and has circa 14 million policies and over £300 billion of assets under administration.