Five question series
ESG readiness: where do you stand?
The ESG continuum
There are multiple stages in creating and realising an ESG-focused strategy: from alignment on ESG goals, to investments that reflect those priorities, to active management and stewardship that promotes your objectives.
Mercer’s March survey of 650 pension plans showed significant variations across pension plans:
Interestingly, the size and resourcing of a fund did not necessarily determine where it fell in this continuum.
Where do you fit in?
If that top quartile sounds familiar to you, keep up the good work! But if you’re not quite there, like most of the schemes surveyed, don’t despair. It’s not too late, and your efforts are critical not just for your scheme and investors, but for the planet.
Since each scheme has a unique set of philosophies and priorities, the first step is to articulate your beliefs, define your goals and reach agreement. You can start with a simple question – Is ESG accepted as a priority among trustees? If the answer is yes, it’s time to dig deeper and set plan specific ESG criteria. This may be challenging; while most schemes agree that ESG represents risk and opportunity, only 63% believe they have a proficient understanding of ESG. Here are three steps to get started:
Once you’ve agreed on core beliefs, you can set matching investment policies and implement them within your portfolio. Be sure to re-examine your beliefs periodically to ensure they still reflect the priorities of your scheme and end investors.
It’s time to start
A major checkpoint looms with the implementation of mandatory reporting under The Task Force on Climate-Related Financial Disclosures (TCFD). Now required only for schemes over £5bn in assets, by the end of 2023 schemes over £1bn will need to report on governance, strategy, risk management, metrics and targets.
Meeting the requirement will require the right data, which varies by investment type. That’s a significant challenge on its own, as we’ll discuss in a future blog. But the starting point must be your scheme’s core belief system, which then filters through to investment guidelines, voting, stewardship and, ultimately, measurement. Those conversations take time but, when the foundation is in place, you’ll be well on your way to meeting the governance reporting objectives.
How AMX can help
AMX provides pensions schemes, investment consultants, and investment managers with a seamless and standardised way of doing business together. Our new climate reporting hub, AMX Zero, leverages our experience in data aggregation and connecting firms to create reporting solutions for pension trustees and insurance companies.
Photo credit: Paul Gilmore on Unsplash
Five question series