Newton Investment Management (Newton), part of BNY Mellon Investment Management, sponsors the Pensions Policy Institute’s (PPI) report on ‘Engaging with ESG: Environmental, Social and Governance factors’. The report reveals that, while the focus on ESG considerations has increased among UK pension schemes, there are still concerns around access to data, and there has been more of a focus on climate change than on social and governance factors when mitigating ESG-related risks.1
The PPI found that two-thirds of UK pension schemes surveyed felt that they were doing “enough” to account for ESG risks in their investment strategy. However, 53% also said they face barriers when implementing an appropriate ESG strategy. These barriers included the large quantities of data and inconsistent quality of information available on ESG risks, ESG data issues such as availability and costs, and divergence between measures across the industry.
Commenting on ESG data barriers, Andrew Parry, Head of sustainable investment at Newton, said:
The world of ESG data is incredibly broad and at times complex, and it is understandable therefore that so many of those surveyed cited this as a major barrier to formulating their ESG strategy.
Our role as asset managers is to support our clients in demystifying how data is used, and to provide clarity on the data available, costs involved, and the underlying exposures in their portfolios and the motivations behind them in order to promote the best outcomes possible for them.
Andrew Parry, Head of sustainable investment at Newton
When it comes to mitigating ESG-related risks, it is clear that progress has been made towards more effective integration of climate change risks, but the focus on social and governance issues is still lagging. Schemes are beginning to recognise the need to analyse the full range of ESG risk factors in order to determine a more holistic overview of the issues affecting investment performance.
Changes in regulation and an increased focus on ESG across the investment landscape have driven shifts in UK pension schemes’ investment strategies. Looking beyond the UK, in the absence of the regulatory motivations, specific events and shifts in society have driven schemes to re-examine the social impacts of their investments. The report reveals a need for schemes and third parties to work more closely together, perhaps using climate change initiatives as a blueprint, to make change where it is needed to ensure that members’ savings are appropriately protected against ESG risks.
Lauren Wilkinson, Senior Policy Researcher at the PPI
The research from the PPI identifies five areas where further progress would help support pension schemes to address ESG-related issues: the building of a consensus among stakeholders about ESG-focused goals, engagement and stewardship, innovation in products and data provision, increasing knowledge and understanding, and standardised data and definitions.
2020 was a year when attention towards environmental, social and governance issues were accelerated amid the global pandemic. ESG factors have a direct impact on investment strategies, and understanding them better will support schemes to exploit opportunities and mitigate risks appropriately. The pensions industry has clearly built up its knowledge of climate-change risk successfully. We believe it needs to adopt the same process for social and governance factors in order to provide a more holistic view to mitigate risk. This will enable trustees to make more informed decisions, which should lead to improved pension scheme outcomes.
The report also underscores the fact that success in these areas depends upon collaboration between the various parties across the pensions industry. Active asset managers like Newton, and others in the industry, need to work purposefully to engage with schemes and help them not simply to meet their ESG-related obligations, but to do so in the context of achieving strong outcomes too.
Julian Lyne, Chief Commercial Officer at Newton,
The Engaging with ESG paper series has been published by PPI since December 2020. This latest report includes responses from a survey, conducted in November 2020, of participants from across the industry including pension schemes as well as consultants and asset managers.
Notes to editors
Newton Investment Management Limited (Newton) is a London-based global investment management subsidiary of The Bank of New York Mellon Corporation. Newton is authorised and regulated by the UK’s Financial Conduct Authority and registered with the US Securities and Exchange Commission. Registered address, BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. With assets under management of £46 billion (as at 31 Dec 2020), Newton provides investment products and services to a wide range of clients, including pension funds, charities, corporations and (via BNY Mellon) individuals. News and other information about Newton is available at newton-dev-01.aws.hmn.md and via Twitter: @NewtonIM.
About BNY Mellon Investment Management
BNY Mellon Investment Management is one of the world’s largest asset managers, with $2.2 trillion in assets under management as of March 31, 2021. Through an investor-first approach, BNY Mellon Investment Management brings to clients the best of both worlds: specialist expertise from eight investment firms offering solutions across every major asset class, backed by the strength, stability, and global presence of BNY Mellon, one of the world’s most trusted investment partners. Additional information on BNY Mellon Investment Management is available on www.bnymellonim.com.
BNY Mellon Investment Management is a division of BNY Mellon, which has $41.7 trillion in assets under custody and/or administration as of March 31, 2021. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.
Unless otherwise specified herein, all information sourced by BNY Mellon as of 22 April 2021. This press release is qualified for issuance in the UK and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized.
1 Carried out in November 2020, the survey was open to responses from both schemes and third parties involved in the process, such as consultants and asset managers. There were 62 responses in total, including 31 pension schemes, 48% of which were Defined Contribution (DC) and 52% Defined Benefit (DB).
