UK pension scheme transparency survey on environmental, social and governance issues

There is, this report argues, increasing UK public interest in the accountability of investors. The 20 occupational pension funds examined in this report are of particular public interest because they together own over £292 billion, or approximately one-third of all UK occupational pension fund capital, and have a membership of over 3.9 million people.

Transparency and accountability on environmental, social and governance (ESG) issues are particularly important, as there is a rapidly growing recognition that taking these issues into account is important for increasing returns and managing risks which have the potential to damage not only the environment and human rights, but also pension savings and the broader economy.

Main findings include:

• many funds have set up websites, or expanded existing ones, to meet the demand for increased transparency. More funds’ websites have sections dedicated to disclosing documents like their statement of investment principles (SIP) or responsible investment (RI) policies, thus moving toward clearer public commitments to RI and engagement responsibilities
• however, there is cause for concern , with guidelines often ignored. Despite the evidence of improvement by high-scoring pension funds, many funds at the bottom of the survey give cause for concern.  Half of the pension funds in this survey did not disclose policies on ESG issues; for example they often did not disclose engagement strategies or voting records – and in doing so failed to meet industry best practice codes such as the Myners Principles, the United Nations Principles of Responsible Investment (UNPRI) or those put forward by the Institutional Shareholder’s Committee (ISC)
• a number of companies which have well-developed corporate social responsibility (CSR) and transparency policies, have pension funds that performed very poorly on transparency and in demonstrating their engagement activities. This lack of accountability is in sharp contrast to the CSR policies of their sponsoring organisations
• overall, despite improvements in transparency, there is not yet widespread evidence of funds’ commitment to engagement on ESG issues. The survey asked two questions that measure how the funds disclose the records of the actual results of the funds’ ESG activism – reporting the results of the fund’s engagement strategies and the fund’s recent voting patterns. These two questions were the lowest scoring on the survey, with only four schemes providing evidence to the authors of any voting records at all, and only five funds publicly disclosing the results of engagement activity.

The report argues that engagement on ESG issues improves financial returns for funds as well as providing social and environmental benefits to society. The costs of managing engagement on ESG issues will more than cover themselves, and has a potentially significant influence on financial value of pension funds as well as their social and environmental impact.

Responsible investment and engagement can therefore be seen to be as much a financial imperative as they are a moral one, and are therefore integral to the overall fiduciary responsibilities of pension fund trustees - without transparency it is impossible to see whether pension funds are living up to these responsibilities.