Are pension funds experiencing disclosure overload? 

Pardon the Interruption

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Some of the largest pension schemes are acting as trailblazers by publishing responsible investment or stewardship reports, but even they appear to be struggling to keep up with the numerous reporting requirements under mandatory and voluntary frameworks. Are UK funds suffering from disclosure overload? 
Two of the UK’s largest trust-based schemes, the BT Pension Scheme and the Universities Superannuation Scheme, have recently published their stewardship reports. USS has produced an extensive report, saying it will this year and next focus on extending stewardship to corporate bonds, developing a strategy to achieve its net zero commitment and a systematic approach to ESG data collection. It takes the Stewardship Code’s principles and reports for each one, as well as using a few case studies. 
The stewardship report by the Northern Local Government Pension Scheme pool is shorter, being a quarterly publication. It reads more like a magazine, with a longer case study and highlighting its involvement in high-profile ESG stories such as the IPO of gig economy employer Deliveroo and the departure of Rio Tinto’s chief executive and chair following the destruction of an Aboriginal site in Australia. 

BTPS: ‘Growing pains’ in reporting 

BTPS’s first responsible investment and stewardship report is a 53-page document explaining everything from its internal structures to the principles of the UK Stewardship Code, along which it offers the disclosures. The fund reveals that it has engaged with 177 firms globally, with a third of this focussed on governance matters and a quarter on environmental issues. 
Head of sustainable investment Victoria Barron says the fund sought to bring the report alive for members, describing it as “the whole point” of reporting. “Seeing as it’s our first year, we were trying to see how it goes, and hearing what the [Financial Reporting Council] are looking for in terms of disclosure,” she notes. The scheme is planning to seek feedback from its 1,500-strong member panel later this year and is looking at organising a member event in October. 
Barron says it was hard to know what to include in the report, speculating that members might find some content about the fund’s structure and governance less interesting, which is why the fund wants feedback. She also notes that the FRC will start to grade reports next year. 
Reporting is the “window into the organisation”, she says, but argues that at the moment, there is a “disclosure overload”, noting that she spent a third or more of the year just focussing on reporting in line with Principles for Responsible Investment, implementation statements and the Stewardship Code. This takes time away from the day job, she observes, meaning “I wasn’t doing the much deeper work I wanted to do.”  
Barron says there are naturally some “growing pains” in getting a sector to produce disclosures for the first time. Given that BTPS – as one of the UK’s largest schemes with a dedicated sustainability function and larger budget – is struggling with the extra workload, there is a risk that smaller schemes might capitulate before they started. 
To see if reporting can become more manageable, BTPS, along with USS, Brunel Pension Partnership, the Church of England Pensions Board and RPMI Railpen commissioned a report by Chronos Sustainability earlier this year to find overlaps in reporting requirements between different frameworks. At the moment, there are some commonalities on data and indicators, but a large amount of additional writing and text editing is involved in preparing submissions, according to the study, but Barron is hopeful that in time, regulators and voluntary framework providers will come together to cross-reference and consolidate reporting requirements. 

Last week, chancellor Rishi Sunak announced plans to legislate for new integrated Sustainability Disclosure Requirements that "will bring together and streamline existing climate reporting requirements and go further to ensure consumers and investors have the information they need to make informed investment decisions and drive positive environmental impact". 
Barron also says asset managers need to be held to greater account, and should “work a lot harder for clients”, helping them with the reporting requirements. There are “really varying levels of disclosures” from managers, with consultants also being of limited help, she says. 
Stewardship reporting is currently still the domain of the very largest funds, agrees Bart Heenk, managing director of governance specialists Avida International. “Some of our largest clients are taking this seriously and are in the process of producing informative reports,” he says, but ‘smaller’ funds – of £2bn-£5bn - “are lagging behind and may not be producing anything of value in the short term”, he says. 
Heenk attributes this to the fact that smaller funds are more likely to invest in pooled vehicles rather than segregated mandates, as “asset managers are yet to take stewardship reporting on funds seriously”. 

New requirements force trustees to think 

With the shift to defined contribution and pooled fund investment, pension schemes have become more removed from the voting and stewardship process at investee companies. This is an area of concern for pensions minister Guy Opperman, who has this year set up a Taskforce on Pension Scheme Voting Implementation to make recommendations on how to reform shareholder voting, expected to report back in the autumn. 
There could well be changes, as the regulatory screw is being tightened on how investors, asset managers and listed firms should assess and manage real world risks affecting investments and act as stewards for members’ money. 
The top-down pressure seems to be working; the requirement to publish implementation statements from October is certainly “triggering thoughts” among trustees, says Sarah Wilson, chief executive of voting and research provider Minerva Analytics.  
Wilson notes that funds feel overwhelmed with reporting, but though the different frameworks – Stewardship Code, implementation statement, TCFD, Principles for Responsible Investment etc – each come with subtly different reporting requirements, they can be rolled into one, she argues. "You could tie TCFD reporting into PRI and stewardship reporting,” she says. “You don’t have to write 25 reports, you can write one and cover off all of these.” 
While the wording of the requirements under each framework might be slightly different, what is really required is often the same, she notes. 

Stewardship reporting is a masterclass in comms 

Producing a governance document such as a stewardship report is firstly “a great way for a committee to take some time out, stand back, look at what [the fund] is doing and asking questions”, she observes, but it is also “a fantastic way for trustees to up their game on communications”.  
But who should trustees be communicating with – regulators or members? “The FRC would be thrilled if people’s writing could address as wide an audience as possible,” says Wilson, noting that the FRC has mentioned reports should be short, sharp and to the point. 
She highlights master trust Nest as an example of good practice, saying the scheme is making jargon accessible. “There is no reason why you can’t have a high-level executive summary... which then leads to a more comprehensive document that people can jump in and out of on different issues,” she says. “It is fundamental to the role of the trustee to be the interpreter for the members.” 

Should different regulators and frameworks work together on asset owner reporting requirements to avoid overload?