Willis Towers Watson outlines priorities for UK pension trustees to “unlock real ESG action”

Pension schemes looking to make a real impact on Environmental, Social and Governance (ESG) issues should target their efforts in order to deliver better outcomes, according to Willis Towers Watson.

Willis Towers Watson is calling for UK pension schemes to take immediate practical steps in two critical areas: climate action, and long-term stewardship.

With climate action, the advisory says that significant progress can be realistically achieved by all UK pension schemes by taking three practical steps:

  • Quantify climate risks – each scheme has its own specific risks inherent in its asset and liability profile
  • Identify climate opportunities – there is significant potential to improve returns and manage risk through the period of transition to a low carbon world
  • Implement a Carbon Journey Plan – the ‘how and when’ these risks and opportunities will be managed

Secondly, Willis Towers Watson says that as trustees are the stewards of assets over the long term, Willis Towers Watson believes a real difference can be made by taking the following steps:

  • Policy – set a clear stewardship policy
  • Engagement – review investment managers’ corporate engagement activities and hold them to account on material issues
  • Voting – review investment managers’ voting records on key ESG issues and guide their voting behaviour to be consistent with trustees’ investment objectives

Willis Towers Watson believes just eight additional hours per year from trustees can unlock real progress on these two key ESG priorities.

Based on analysis of typical trustee investment meetings, the additional time would be made up of two additional hours on each of the following activities:

  • Training
  • ESG strategy
  • Portfolio review
  • ESG monitoring

With eight hours per year of effective, action-orientated trustee time spent on ESG, pension schemes could begin to unlock significant impact and ultimately deliver better outcomes for members.

David Aleppo, head of UK Investment Advisory Services at Willis Towers Watson, comments: “Acronyms are only useful if they spur action – and that applies to well-meaning ESG intentions too. We believe that trustees’ time is one of the most valuable levers available for bringing about lasting change. Reimagining the agenda of trustee meetings could unlock real ESG action by focussing on practical priorities.

“Two priorities will never be enough but they can be a vital first step. Underplaying climate change is a financial risk which must be reflected in trustees’ decision making.  Trustees should maintain a long-term focus and ensure that their asset managers do the same.  Trustees’ stewardship roles can be a powerful mechanism for positive change in the investment industry. We see these two agenda items as a way for trustees to begin turning ESG aspirations into ESG action without significant time commitment.

“Increasingly, our most successful work with pension schemes has involved both a review of portfolios and also a review of trustees’ own highly valuable time.”