On Apr. 11, UN PRI detailed report on sustainability in key pensions.
UN PRI issued Progress and priorities: reviewing sustainability in key pension systems report on sustainability in pension systems, reviewing Australian, UK and US progress.
Follows UN EPFI May 2021 flagged new sustainability report publication, see #105766.
Report Introduction
Pension funds are long-term investors and their ability to generate long-term returns relies on the performance of the markets and economies in which they all now invest.
Because sustainability factors like climate change and biodiversity loss threaten market performance, pension funds have a responsibility to consider whether sustainability-related risk will inhibit ability to protect long-term value and provide adequate pension.
Accordingly, all of the pension funds are increasingly seeking to mitigate any of these risks through their own investment decisions and through their stewardship activities.
Previous Report Summary
Research carried out by UN PRI in 2020 and 2021 on Australian, UK, US and Japanese pension systems found there are policy, structural and market barriers to sustainability in these jurisdictions, which impact ability of pension funds to incorporate ESG factors.
This also identified intervention areas for policy makers and bodies, including UN PRI.
Following this, UN PRI, the UNEP Finance Initiative (FI) and the Generation Foundation commissioned A Legal Framework for Impact (LFI) report that was published in 2021.
With an analysis of 11 jurisdictions around the world, the report considered whether law permits or requires investors to tackle sustainability challenges by setting goals.
The report found, under existing laws, pension funds are likely to have legal obligation to consider investing for sustainability impact where this can help pursue objectives.
However, pension funds may face impediments to setting any sustainability objectives.
With this in mind, this Legal Framework for Impact briefing does now suggests a range of recommendations for policy makers that are all designed to address these barriers.
2023 Report Summary
In 2023, UN PRI carried out further industry research and interviews in Australia, UK and US to gather updated perspectives on barriers to sustainability in pension systems.
Drawing on the conclusions of UK PRI’s earlier pension reports and the LFI study, the report summarizes the findings from this research in 10 priorities that are necessary for a pension system to fully take all of the sustainability considerations into account.
These priorities could enable and incentivize pension funds, their investment managers and consultants to build more sustainable investment portfolios and help pension fund members become more informed about the sustainability objectives of their schemes.
Priorities are summarized in policy, market structure and investment practice sections and report analyses extent to which Australian, UK and US pension system progressed.
UN PRI used analysis to highlight good practice and key gaps within each jurisdiction.
It found while there has been progress since UN PRI’s earlier reports, especially policy and regulation, with significant developments across all three jurisdictions, there are many elements across policy, market structure and investment practice frameworks.
UN PRI's aim with research is to offer policy makers, investors and other stakeholders a view on the current state of the policy, market structure and the investment practice environment for these pension funds, and to spur discussion on priority change areas.
Alongside this research, UN PRI has been collaborating with all its signatories to the design Progression Pathways, which seeks to distinguish different approaches investors take to addressing sustainability-related risks and set out what best practice looks like.
This may improve alignment on responsible investment objectives between the actors.
Policy and regulation may also seek to clarify how such approaches do all align with the various pension fund duties, and whether any more particular approaches are required.
10 Priorities Summary
First priority is that framework is comprehensive and consistent, and policy makers develop a comprehensive, consistent and supportive policy framework that provides clarity for pension funds as they seek to address sustainability risks and opportunities.
Second, policy and regulation distinguish exposures to any sustainability-related risks, tackling underlying drivers and seeking sustainability outcome with financial objectives.
Thirdly, pension funds, investment managers and intermediaries produce standardized reporting on sustainability objectives, providing information about the extent to which pension funds met the stated sustainability objectives and acted to achieve objectives.
The fourth priority is there is appropriate guidance on sustainability claims of pension funds and regulators provide guidance to pension funds on how to demonstrate claims.
The fifth priority is pension funds have scale or can access the benefits of scale and policy makers and regulators encourage fund consolidation where there are benefits.
The sixth point is that suitable, sustainable investment products are available and accessible and funds can access investment products with desired characteristics, at appropriate cost and scale, to achieve their overall sustainable investment objectives.
Point seven is members and beneficiaries are educated about and engaged regarding their sustainability objectives, with views reflected in pension sustainability strategies.
The eighth point is trustees and fiduciaries are capable and skilled, with sustainability knowledge to meet high professional standards and all receive sustainability training.
Point nine is for trustees and fiduciaries to be willing to move past traditional pension fund investment strategies, identifying, implementing and supporting the benchmark development to pursue sustainability outcomes in keeping with their fiduciary duties.
Finally, service providers, notably investment managers/consultants, are adequately incentivized, able and willing to provide products and services that support objectives.
Regulators
UN PRI
Entity Types
Corp; Fiduciary; IA; Pension
Reference
Rp, PR 4/11/2024; ESG
Functions
Compliance; C-Suite; Environment; Financial; HR; Legal; Operations; Outsourcing; Social; Training
Countries
Australia; Global Regulator; Japan; United Kingdom; United States of America
