ICSWG launches new workstream to free trustees from ‘tick box’ exercises and enhance sustainable investment practices

The Investment Consultants Sustainability Working Group (ICSWG) has set up a new workstream that will be working with regulators and policymakers to help enable pension scheme trustees to be freed from ‘tick box’ exercises and focus on making more impactful decisions that will boost sustainable investment and enhance scheme members’ outcomes.

The ICSWG brings together leading UK investment consulting firms with the aim of seeking to improve sustainable investment practices across the investment industry.

The group notes that much of the sustainability regulation and policy for UK pension funds has been focused on reporting. There were initial benefits as pension trustees and their advisers increased their focus on, and understanding of, sustainability matters in order to be able to produce the reports. However, the benefits have diminished as the reporting has become more routine.

The reporting is quite burdensome, so the regulations have unintentionally led many trustees to spend most of their sustainability time and budgets on compliance-focused activities. As a result, they have less time to consider actions they can take to improve member outcomes.

The ICSWG is also concerned that many actions taken are more about ‘paper portfolio compliance’, such as decarbonising by selling high-carbon assets, rather than creating real economic changes in behaviour. This approach fails to address the actual sustainability issues that pose risks to members’ benefits.

The working group wants to see more trustees making impactful decisions that drive a more sustainable economy from both social and environmental perspectives, thereby addressing long-term systemic risks for beneficiaries, whilst also improving the financial risk/reward of investments.

The workstream is initially focusing on three key policy areas:

• Simplifying, reducing and harmonising reporting requirements and regulatory burdens, enabling trustees to spend more time on impactful actions.
• Removing barriers to action or encouraging action that supports the full range of sustainable investing, across public and private markets.
• Reducing barriers and incentivising allocations to productive finance opportunities that help drive a more sustainable economy from both social and environmental perspectives.

Claire Jones, workstream Chair, as well as Partner and Head of Responsible Investment at LCP said: “Pension fund regulations should go beyond just reporting on sustainability and instead encourage true and impactful change. ICSWG looks forward to working with regulators and policymakers to achieve this and hence deliver better outcomes for pension scheme members.”

Iona Young, workstream member and Sustainable Investment Consultant at Isio said: “We believe that managing the burden of regulation and reporting is crucial to enabling more schemes to focus their sustainability efforts where they are most impactful. The ICSWG is working to simplify the regulatory landscape whilst putting real world outcomes at its centre, through collaborating across the industry with regulators and policymakers on behalf of schemes and their members.”

Alison Leslie, workstream member and Head of DC Investment at Hymans Robertson said: “We’re delighted to work with industry colleagues and key stakeholders within the regulatory framework of the industry to input into policy shape and direction. To achieve real world impact we need to use forward looking metrics and measures to make meaningful impact. We look forward to help shape thinking and action in this vital area.”

Keith Guthrie, workstream member and Head of Sustainability for Cardano UK said “Trustees increasingly recognise the importance of long-term systemic risks such as climate change, biodiversity and social inequalities on their member outcomes. By engaging with regulators and policymakers, the ICSWG seeks to ease reporting burdens, and to equip and enable trustees to focus on actions that will support the transition to a more sustainable society to the benefit of their members.”

Gareth Evison, workstream member and Investment Consultant at Gallagher said: “Having the burden of complex reporting eased for trustees and key stakeholders will enable them to focus on key areas to make real, measurable change. The ICSWG are proud to collaborate with policymakers and regulators and drive reporting simplification with real world, sustainable impact”.

Paul Lee, Head of Stewardship and Sustainable Investment Strategy at Redington said: “Our clients are increasingly recognising the importance of systemic engagement, including public policy and best practice work, as part of the toolkit for addressing the sustainability challenges we all face as investors. This new workstream is a key way for us to build further our own efforts and those of consultants generally in shaping the context for investment decision-making.”

About the Investment Consultants Sustainability Working Group

The Investment Consultants Sustainability Working Group (ICSWG) is a collaboration between 19 firms, formed in 2020, taking action to support and accelerate sustainable investment initiatives in the UK.

All members of the working group provide investment consultancy services to UK asset owners and while some of the firms’ activities extend to other services, clients or jurisdictions, these fall outside of this group’s scope.

There is also an ICSWG in the US (“ICSWG-US”) and we collaborate globally on initiatives.

The ICSWG members are: Aon, Barnett Waddingham, bfinance, Broadstone, Cambridge Associates, Capita, Cardano, Gallagher, Hymans Robertson, Isio, LCP, Mercer, MJ Hudson, Momentum, Redington, Schroders Solutions, SEI, Willis Towers Watson, XPS Investment.