ESG: What’s next?


10 Nov 2021

It is clear that the ESG agenda is going to continue to dominate the investment arena in 2022, says Karen Hurst



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It is clear that the ESG agenda is going to continue to dominate the investment arena in 2022, says Karen Hurst

Karen Hurst is the Pensions and Lifetime Savings Association’s (PLSA) senior policy adviser for investment and stewardship policy and advocacy

Almost exactly a year ago the PLSA was putting the finishing touches to a report that set out our policy asks around climate investment. Just one year on, we are pleased to have been able to publish an update demonstrating significant progress in almost all recommendations – indeed a large number can now be considered ‘achieved’. The pace at which the responsible investor policy agenda is currently moving is significant, and it is clear, in our discussions with members, that it is now a priority topic – if not the priority topic – for most.

So, what’s next in ESG? Below we look at some of the trends that could dominate the year ahead.

– At the time of writing, we do not know what the headlines will be from the COP26 conference, nor the impact of any new agreements on climate and pensions policy. However, it is clear that awareness of climate change will continue to grow in the minds of policymakers and pension savers. The past 18 months have been a time of unprecedented scrutiny, but it is probably also just the beginning. The government’s Green Finance Roadmap demonstrates that expectations will continue to grow.

– 2022 sees the first schemes needing to produce a statutory TCFD report (those with assets under management of more than £5bn and authorised master trusts are first up). Over the coming years, all schemes – including smaller schemes and the LGPS – will be required to report according to the TCFD framework. It is increasingly clear that the post-publication period may be as complex as the preparation of the report itself. The Pen- sions Regulator’s draft guidance states that, though it will be acceptable for reports to only include information that is available to schemes, the following year’s report should demonstrate that progress has been made in obtaining the data. Similarly, we should expect that the reports will be subject to significantly more member and stakeholder scrutiny once available.

– Standardisation is likely to be on the agenda in the UK, where the impact of the European Sustainable Finance Disclosure Regulation has been limited because of Brexit. However, the government has committed to a UK taxonomy, and in the summer the chancellor announced an economy-wide UK Sustainability Disclosure Requirement. The Treasury has said this will “bring together and streamline existing climate reporting requirements and go further”.

– Stewardship has been a focus of the Department for Work and Pensions for the past few years, and there continue to be some interesting projects underway looking at how this can be improved. The PLSA is currently working with the Investment Association looking at the various relationships throughout the investment chain, and the government’s Taskforce for Pension Scheme Voting Implementation report has recently been published. With increasing scrutiny of climate risk, trustees should expect to see scrutiny of stewardship activity continue. The first batch of the new Stewardship Code signatories has recently been published, with asset owners leading the way in meeting the new standard.

– Earlier this year the government launched a Call for Evidence on the ‘S’ in ESG, and the pensions minister is on the record as saying this would “transform” the supply chain and investment. The PLSA is currently working on research with partners at the CIPD, High Pay Centre and Railpen on workforce disclosure. This year’s AGM season revealed continued concerns about executive pay. Climate may be dominating the headlines this year, but it is clear that social considerations will not be forgotten.

It is clear that climate change, and the wider ESG agenda, is going to continue to dominate the investment arena in 2022.

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