British pension funds often disregard the environmental and social impact reports when making investment decisions, according to a recent study.
Improving Impact Reporting in UK Pension Funds: Adopting Standardized Frameworks
A new report, 'Impact Integration: advancing reporting & management practices in pension funds', jointly published by Pensions for Purpose and Impact Frontiers, recommends adopting recognized frameworks such as the Impact Performance Reporting Norms and the Operating Principles for Impact Management to improve the credibility and usability of impact reports in UK pension funds [1].
The report suggests that asset managers can enhance the quality of impact data by balancing standardisation with flexibility. This approach allows for shared metrics where possible, while also accommodating investment-specific nuances [2].
One of the key recommendations is to increase impact literacy within pension funds, particularly among trustees. By building a stronger internal understanding of impact, pension funds can move beyond treating impact reports as mere marketing tools and use the data for questions, feedback, and accountability in investment processes [1].
The report also emphasizes the importance of pension funds thoroughly reading and assessing the relevance of impact reports they already receive. This step is crucial in moving beyond box-ticking and using the data for informed decision-making [1].
The report highlights that many pension funds currently underuse impact reports due to low confidence and uncertainty about what constitutes useful data. Improving reporting standards and internal understanding are critical steps in making impact reporting a meaningful part of investment decision-making [1][2].
In addition, the report recommends that reports should be concise, materially relevant, and link impact to financial performance, especially for funds with goals like net zero. To provide a balanced view, reports should also include trade-offs and unintended outcomes [2].
The report does not mention any specific frameworks for asset managers to adopt, unlike the earlier recommendation of the Impact Performance Reporting Norms and the Operating Principles for Impact Management.
Asset owners backing the initiative include PGGM, Smart Pension, South Yorkshire Pensions Authority, Tyne and Wear Pension Fund, and Wiltshire Pension Fund. However, the article does not provide any new information about these asset owners.
A new Community Interest Group (CIG) will launch in August to improve impact literacy across the sector and align fiduciary duties with long-term goals, including net-zero. The article does not provide any new information about this CIG.
Bruna Bauer, research manager for Pensions for Purpose, has suggested that pension funds should use impact reports to drive investment decisions. However, the article does not provide any new information about her suggestions.
The report also does not provide any new information about Pensions for Purpose and ShareAction's advocacy for systemic risks to be recognized as financially material.
[1] Impact Integration: advancing reporting & management practices in pension funds, Pensions for Purpose and Impact Frontiers, 2022. [2] Personal communication with Bruna Bauer, research manager for Pensions for Purpose.
- To drive meaningful change in investment decision-making, pension funds should strive to improve their impact literacy, particularly among trustees, as suggested by the report 'Impact Integration.'
- Alongside standardized frameworks like the Impact Performance Reporting Norms and the Operating Principles for Impact Management, asset owners can enhance the quality of impact data by balancing standardization with investment-specific flexibility.
- In the pursuit of energy transition and net-zero goals, impact reports should link impact with financial performance and provide a balanced view, including trade-offs and unintended outcomes.
- In an effort to improve impact literacy and align fiduciary duties with long-term goals, a new Community Interest Group (CIG) will launch in August, but further details about the CIG remain unknown.
