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XPS Pensions Group urges trustees to take proactive oversight of fiduciary managers’ approach to ESG

XPS Pensions Group urges trustees to take proactive oversight of fiduciary managers’ approach to ESG

22 Jul 2022

•  Despite making progress in implementing effective ESG management systems, some fiduciary managers still display shortcomings
•  33% don’t exclude lowest ESG-rated funds, and not all managers have capability to report their carbon footprint
•  Report findings suggest trustees could lose alignment of their ESG beliefs and goals when using fiduciary management

There may still be a gap between trustee expectations and the actions of fiduciary managers (FMs) to incorporate ESG approaches into their offerings, a report by XPS Pensions Group has found.

According to XPS’ report, Progression of the UK Fiduciary Management Market’s Approach to ESG Integration, fiduciary managers have continued to make progress implementing ESG approaches across their offerings. For example, many now explicitly reference ESG policies in investment policy documents or exclude underlying managers who are assigned the FM’s lowest ESG rating.

There is still evidence of industry shortcomings, however. 33% of FMs still aren’t excluding funds run by managers who have received their lowest ESG rating from their portfolios. Similarly, not all FMs have the capability to report their carbon footprint, despite having made commitments to the Net Zero Asset Managers Initiative.

At a time when alignment with ESG goals is becoming increasingly important for members of schemes, XPS Pensions Group is calling on trustees to evaluate their fiduciary manager’s ESG credentials. This is in order to identify any gaps between their expectations and the manager’s delivery and take action to close those gaps. 

Taking this action is increasingly important to ensure ESG measures are reflected across the pensions industry, as approximately 1 in 5 DB schemes are now under fiduciary management of some kind.

André Kerr, Partner at XPS Pensions Group, said: “With a significant chunk of UK DB pension schemes now under some form of fiduciary management, it’s time for trustees to be proactive in engaging with their FMs to ensure that their expectations around incorporating ESG activity are met by their current manager. If they don’t, they may well face a challenge from members who are increasingly engaged on ESG.”

XPS Pensions Group’s full report can be viewed here:

Related links

FM ESG Integration Survey

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