26% of fiduciary managers do not have net zero goal, XPS Pensions Group finds

26% of fiduciary managers do not have net zero goal, XPS Pensions Group finds

07 Sep 2023

• 26% of fiduciary managers (FM) do not have net zero goal, according to survey
• This despite many pension schemes having clear climate change objectives for their portfolios.
• Findings suggest mismatch between trustee and FM approach to tackling climate change.

More than one in four fiduciary managers (26%) in the pensions industry do not have a net zero target, research from XPS Pensions Group has found.

The finding, part of the pension consultancy’s newly-launched report Progression of UK fiduciary managers’ approach to ESG integration, comes despite many pension schemes making their own net zero commitments or having clear objectives to tackle climate change as part of their portfolio management strategy.

Further, over 50% of fiduciary managers surveyed did not have minimum explicit climate-related requirements for the underlying funds in their investment strategies, indicating that many fiduciary managers are not fully integrating climate-related issues within their investment strategies.

Even if FMs do set targets, there is evidence that the industry does not take an active approach to stewardship. Only 40% of FMs reported exercising influence of voting activities of the underlying managers or assets they invest in.

The findings suggest that pension scheme trustees could find themselves in a scenario where the green objectives they have set for their scheme prove unachievable as a result of the fiduciary arrangements that they have made.

XPS’s analysis indicated that fiduciary managers had made some progress in integrating ESG into their investment approach, with 27% of managers receiving a ‘green’ overall rating from the consultancy – the highest level since the survey was launched.

André Kerr, Partner at XPS Pensions Group, said: “While it’s clear that fiduciary managers continue to make progress in integrating ESG into their day-to-day investment decisions, there are still some areas where there may be a mismatch between the commitments trustees have made and the actions of the FM.

“Trustees must be active in examining their FM’s ESG practices and ensuring that these align with their scheme’s sustainability goals.”

Notes:

Questionnaires were distributed to fiduciary management firms in Q1 2023, with responses received until the middle of Q2 2023. 15 fiduciary management firms replied to the survey, in total representing 90% of the market.