Climate risk seen as less material than longevity – Trustee Report 2021
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
Just 3% of schemes expect that climate change risk will have the most material impact on their ability to pay pension benefits, new research by mallowstreet has found, as longevity tops the concerns list, followed by investments and inflation.
The vast majority of schemes do not believe that climate risk will have the most material impact on benefits in the future as only 3% expect this to be the case, the latest Trustee Report by mallowstreet, in partnership with Janus Henderson, the Pensions Management Institute, the Association of Member Nominated Trustees and the Association of Professional Pension Trustees and the Pensions and Lifetime Savings Association, has found. Longevity and investment performance were in first and second position, followed by inflation and covenant.
The biggest driver behind ongoing ESG integration is regulatory compliance, followed by reducing investment risk, according to the survey. This mirrors findings from a recent report by Barnett Waddingham which found that legal duties were by far the most important reason why pension funds consider ESG.
Only schemes with a funding level of more than 90% and those with a strong sponsor tend to integrate ESG because they are looking to act responsibly, the mallowstreet Trustee Report shows.
Is covenant only in focus when it’s too late?
More than a third (36%) of schemes with a strong covenant say longevity risk will have the most material effect on their ability to pay pensions, followed by investment risk (27%).
More surprisingly, among those with a covenant tending to weak, only 22% of schemes said they prioritise covenant risk, though the percentage is much higher (60%) among schemes where the covenant has already been classed as 'weak'.
Trustees are increasingly dissatisfied – except with diversity
Elsewhere, the survey found that growing regulatory complexity is the top challenge for 79% of trustees and increased ESG requirements are a key contributor to this. In 2019, 36% of industry professionals said they were very satisfied with their workload, but this proportion has now reduced to 20%; and while 43% said they were very satisfied with resources and support in 2019, only 27% feel this way now.
Trustees show higher levels of satisfaction with the diversity of their boards – more than half (55%) say they are very satisfied with it. Given that 75% of trustee boards are mostly male and mostly white according to the Pensions Regulator, this may show just how big the challenge will be if the regulator is looking to address diversity in earnest.
