ESG through the pensions lens

Environmental, Social and Governance (ESG) considerations are an increasingly important issue for pension schemes. Managing new ESG obligations requires employers, trustees and scheme managers to demonstrate that they are effectively managing ESG issues in relation to their scheme.

This is not a straightforward task. It demands new ways of thinking about ESG-related risks and opportunities and their potential financial consequences. It requires a defined ESG strategy, underpinned by an appropriate framework for managing, monitoring and reporting on it. It also requires transparent information about the investment portfolios and a rich understanding of the employer’s business values and ethos.

For trustees to effectively incorporate ESG risks and opportunities alongside their existing responsibilities, they need a strategy which considers investments, the impact on covenant, and administration, as part of wider scheme governance. Performed effectively, the scheme will become more resilient and increase transparency and value to stakeholders.

ESG in pension investments

Trustees and employers have a significant role to play in tackling climate change and other societal issues through pension investments. ESG and sustainable investment is a specialism in its own right. We believe that Trustees and Employers should have Pensions ESG advisors alongside their traditional teams.

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ESG in public sector pensions

ESG considerations are an increasingly important issue for Local Government Pension Scheme (LGPS) Funds. Regulatory requirements are growing and successful fulfilment of ESG obligations requires Fund Officers of Administering Authorities, their Pensions Committees and Local Pension Boards to work together on ESG issues. This requires a well defined ESG strategy, underpinned by an appropriate framework for managing, monitoring and reporting on risks and opportunities.

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What do pension schemes need to consider?

Every pension scheme and organisation is different. There is no “one size fits all” solution. However, we are seeing similarities in terms of key issues for pension schemes, including:

Taskforce for Climate-Related Financial Disclosures (TCFD) aligned reporting for larger schemes
Incorporating ESG factors into governance for all schemes
The need for ESG and Net Zero strategies
Increasing focus on stewardship and reporting
Availability and quality of information on funds
Member engagement
Reputational risks

Working with PwC will provide you with access to subject matter experts with a wealth of relevant experience to support you in meeting these challenges.

Our pensions sustainability advisors are independent. They will ensure you are getting access to critical review and challenge of your strategies without the risk of a conflict of interest.

How can PwC help?

PwC is a recognised leader in this area. We help guide our clients through their ESG risks and opportunities with advice, strategy, transformation, and reporting solutions.

Our experts can support you in legal, regulatory, investment, covenant, reporting and risk management with support falling into the following areas:

Understanding the ESG status of your scheme investments
Understanding ESG considerations in employer covenants
Working collaboratively to develop your pensions ESG strategy ensuring alignment with key stakeholders
Ensuring compliance with regulatory requirements
Designing a sustainable ESG operating framework
Implementing ESG solutions to manage risk and create value
Support on stewardship and reporting

This is underpinned by our in house expertise, our investment in technology and our market leading digital ESG tools to support clients analyse and handle complex data.

Our services

We will work with you to understand your objectives and to help you identify what ESG means to your organisation and how it affects your scheme and investments. We can support you across the following areas:

Carrying out ESG reviews including alignment with the TCFD, Taskforce on Nature-related Financial Disclosures (TNFD), the United Nations’s Principles for Responsible Investment (UNPRI), the FRC Stewardship Code and other relevant market standards
Fund reviews using our AssetClarity tool
Employer covenant ESG reviews, including in relation to TCFD reporting
Understanding ESG-related risks and opportunities
Developing and implementing ESG and net zero strategies
TCFD aligned reporting for larger schemes
Scheme governance, including in relation to specific ESG considerations
Stewardship and reporting (including support on implementation statements and becoming a signatory to the FRC Stewardship Code)
Member engagement
Key stakeholder management including enabling employers, trustees and other parties to work together to set ESG strategies and align messaging
Engage with providers on data quality