Investment decisions made by UK pension funds often disregard societal and environmental impact reports, according to a recent study.
The recently published report, titled "Impact Integration: advancing reporting & management practices in pension funds", highlights the need for UK pension funds to enhance their engagement with impact reports to drive more sustainable investment decisions[1]. The report, drawn from interviews with 19 pension funds, asset managers, advisers, and consultants, found that many institutional investors remain unsure about how to use impact data meaningfully.
The report recommends the adoption of two frameworks - the Impact Performance Reporting Norms and the Operating Principles for Impact Management - to improve the credibility and usability of reports[1]. These frameworks aim to provide standardized, reliable, and decision-useful impact data, addressing issues such as low confidence, limited impact literacy, and the risk of reports serving as marketing tools rather than decision-making tools.
To strengthen trustees' impact literacy and report engagement, the report suggests trustees should improve their internal understanding of impact and actively engage with impact reports, reading them thoroughly, assessing their relevance, and using them to inform investment decisions and hold managers accountable[1].
A complementary initiative is the launch of a Community Interest Group (CIG) aimed at improving impact literacy across the sector to better align fiduciary duties with long-term goals such as net-zero[1]. Asset owners backing the initiative include PGGM, Smart Pension, South Yorkshire Pensions Authority, Tyne and Wear Pension Fund, and Wiltshire Pension Fund.
Bruna Bauer, research manager for Pensions for Purpose, stated that the first step for pension funds to use impact reports to drive investment decisions is to read the impact reports already being received and assess their relevance[1]. Bauer also recommends that asset managers provide a balanced view in reports, including trade-offs and unintended outcomes, instead of relying on selective case studies.
Bauer's policy work with ShareAction highlights the need for broader reform to ensure systemic risks like climate change are recognized as financially material[2]. She emphasizes that reports should be concise, materially relevant, and link impact to financial performance, especially for funds with goals like net zero.
Trustees often struggle to assess report quality or relevance, while asset managers face challenges in collating quality data. To bridge this gap, Bauer suggests that asset managers should balance standardization with flexibility in reports, using shared metrics where possible, but allowing for investment-specific nuance[1].
In summary, the report advocates for the adoption of the Impact Performance Reporting Norms and the Operating Principles for Impact Management, strengthening trustees' impact literacy and report engagement, using reports as a basis for questions, feedback, and accountability, and building stronger internal understanding of impact among trustees[1]. These steps collectively enhance the reliability and practical use of impact reports in guiding pension fund investment decisions.
[1] Impact Integration: advancing reporting & management practices in pension funds (2022) - Pensions for Purpose and ShareAction [2] Bauer, Bruna (2021) - Aligning fiduciary duty with net-zero: A policy perspective - ShareAction [3] No other relevant frameworks or recommendations specific to pension fund impact reporting were highlighted in the additional search results.
- The report suggests that pension funds should increase their engagement with impact reports to drive more sustainable investment decisions, using frameworks like the Impact Performance Reporting Norms and the Operating Principles for Impact Management to improve the credibility and usability of these reports.
- To better align fiduciary duties with long-term goals such as net-zero, Bruna Bauer recommends that asset managers provide a balanced view in reports, including trade-offs and unintended outcomes, instead of relying on selective case studies.
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