New charter aims to address sustainability in bulk annuities

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Accounting for Sustainability, the Church of England Pensions Board and Railpen have launched a Sustainability Principles Charter for greater transparency, reporting and engagement around sustainability in the bulk annuity process, with 20 founding signatories from the insurance and pensions sectors. 
A4S, a charity created by King Charles III in 2004, said the charter was developed after consultation with pension funds, insurers, pension advisers and the regulatory community and provides guidance around four key principles:  
  1. Transparency   
Transparency of values, principles and investment beliefs in relation to sustainability, as well as ongoing commitments that may guide future policy and practice affecting sustainability approaches.   
  1. Decision making   
Evidence and understanding of how sustainability considerations are incorporated into investment analysis and decision-making processes, and investment stewardship activity.   
  1. Reporting and Engagement   
Ongoing reporting and engagement to key stakeholders on sustainability commitments beyond the point of transaction.   
  1. Collaboration   
Commitment to ongoing engagement across the pension sector as responsible investment best practice evolves.  
A4S director of capital markets, Kerry King, said schemes want transparency on how their sustainability commitments will be reflected after a bulk annuity deal, while insurers welcome guidance from pension schemes and their advisers as to the information that will be valued as part of the process. 
Trustee chairs who are part of the A4S network, "when they are going through the bulk community process, they were concerned about how confident they would feel about their environment or their sustainability embedded strategies, being considered” as part of the process, she said. “They wanted to see how we can better articulate these concerns to the insurer community.”  
A4S brought the members of boards of insurers together with the pension chairs and senior advisers and the regulatory community, who agreed to articulate the concerns in a charter. Insurers then sent their heads of bulk annuity to develop the charter with pension schemes, advisers and A4S. 
Matters discussed included member reporting and investment exclusions, among others, with a need for pension trustees to be able to compare an insurer’s approach to their own. 
“When you're in the engagement with the insurer, how do you understand the sustainability commitments of the entity? Because many of them, if not all of them, have committed to net zero,” said King.  
“Another interesting thing that came out of these workshops is that a lot of that information is there, and the advisers get that, because obviously the advisers are liaising between the pensions and the insurers," she said. “But then that's not being [passed on] to the pension scheme and the trustees and the chair themselves when they make that decision. So that's why the advisers are very much involved in this process.” 
The government’s emphasis on pension investment in illiquid assets has also been considered and was what has brought about principle four of the charter about engaging with new developments, she added.  

The charter constitutes the first phase of the project. In a second phase, signatories will look to create best practice tools to support the charter, for example principles for member reporting. 

“We're also going to be working with advisers and some pension schemes who are going to take that charter as part of a very near-term buyout or buy-in transaction that they will be taking,” King added.  

These will report back on how the charter has supported this process, while “recognising and being very pragmatic about the fact that sustainability isn't one of the deciding criteria at the moment for bulk annuity", she explained.  
The charter demonstrates the collaboration between the pensions and insurance industries, said senior manager pensions policy at Railpen, Tim Miller. 
“In years to come, the pensions industry could see hundreds of billions of pounds of DB assets transfer to the insurance industry through bulk annuity transactions. We believe this charter will form a critical element in the bulk annuity process, to the ultimate benefit of members,” Miller said.  
Stephen Barrie, deputy chief responsible investment officer at the Church of England Pensions Board, said by signing the charter signatories recognise the importance of transparency, embedding sustainability into decision making, ongoing reporting to beneficiaries and trustees and engagement as best practice evolves.  
“Not only will it be a helpful guiding tool during the bulk annuity process, but it also means that we are all playing an active role in investing in a more sustainable world for beneficiaries to retire into,” he said.  
Twenty pension funds, insurers and advisers have signed up as founding signatories:

Pension funds   

Others / professional trustees   

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