Investment choices by UK pension funds disregard environmental and social impact assessments, research reveals
The world of impact investing is evolving, and UK pension funds are taking significant steps to improve the credibility and usability of impact reports. A recent report by Pensions for Purpose, led by research manager Bruna Bauer, recommends the adoption of frameworks such as the Impact Performance Reporting Norms and the Operating Principles for Impact Management.
These frameworks aim to standardize reporting practices, enhancing clarity, consistency, and accountability in impact measurement and management. By doing so, pension funds can move beyond superficial or marketing-oriented reports towards meaningful, decision-useful disclosures.
The frameworks offer several key benefits:
- Enhancing Report Quality and Relevance: Many UK pension funds currently struggle with interpreting or trusting the data in impact reports due to low impact literacy and unclear report quality. These frameworks create standardized norms that help pension funds assess report credibility and focus on useful impact data, reducing greenwashing risks.
- Supporting Trustee Understanding and Engagement: Trustees often lack confidence in evaluating impact reports. Adoption of these norms promotes stronger internal understanding of impact measurement and reporting, empowering trustees to use impact reports more effectively for accountability, questions, and integration into investment decisions.
- Aligning with Fiduciary Duties and Long-Term Goals: The frameworks help incorporate impact reporting into the fiduciary responsibilities of pension funds, aligning investment decisions with sustainability goals such as net-zero targets. This fosters a systematic and credible approach to impact management within fund governance.
- Improving Data Consistency and Comparability: By setting clear principles and performance norms, reports become more consistent and transparent, enabling better comparability across funds and assets. This clarity benefits asset managers and investors by providing reliable data for risk and opportunity assessment.
- Driving Impact Integration in Investment Processes: Adoption encourages a culture where impact data is actively used rather than ignored. Impact reports become tools for continuous improvement, feedback, and strategic decision-making rather than mere compliance documents or marketing tools.
In addition to these frameworks, a new Community Interest Group (CIG) aimed at improving impact literacy is set to launch in August. Asset owners backing the new CIG include PGGM, Smart Pension, South Yorkshire Pensions Authority, Tyne and Wear Pension Fund, and Wiltshire Pension Fund.
Bauer emphasizes that reports should help asset owners make informed decisions, not just serve as marketing materials with another name. She recommends that asset managers should balance standardisation with flexibility when improving reports, going beyond selective case studies and providing a balanced view, including trade-offs and unintended outcomes.
The new report titled 'Impact Integration: advancing reporting & management practices in pension funds' reveals that most UK pension funds do not fully engage with impact reports or use them to inform investment decisions. Bauer suggests that pension funds should read the impact reports they receive and assess their relevance as the first step to using them to drive investment decisions.
As the world moves towards a net-zero future, it's clear that a broader systemic change in regulation and fiduciary duty frameworks is needed. These new frameworks and initiatives are a significant step forward in improving the quality and use of impact reports, ultimately guiding responsible investment decisions aligned with evolving UK regulatory and sustainability expectations.
[1] Pensions for Purpose (2021) Impact Integration: advancing reporting & management practices in pension funds. Available at: https://pensionsforpurpose.org/impact-integration/ [2] Pensions for Purpose (2021) Pension funds need to read impact reports and assess their relevance, says Pensions for Purpose research manager Bruna Bauer. Available at: https://pensionsforpurpose.org/pension-funds-need-to-read-impact-reports-and-assess-their-relevance-says-pensions-for-purpose-research-manager-bruna-bauer/ [3] ShareAction (2021) Pensions for Purpose and ShareAction call for systemic risks, like climate change, to be recognised as financially material and appropriately reflected in fiduciary duty. Available at: https://www.shareaction.org/news/pensions-for-purpose-and-shareaction-call-for-systemic-risks-like-climate-change-to-be-recognised-as-financially-material-and-appropriately-reflected-in-fiduciary-duty/
- Pension funds are adopting frameworks such as the Impact Performance Reporting Norms and the Operating Principles for Impact Management to enhance clarity, consistency, and accountability in impact measurement and management, moving towards meaningful, decision-useful disclosures.
- By standardizing reporting practices, these frameworks aim to reduce greenwashing risks, create standardized norms for pension funds to assess report credibility, and promote stronger internal understanding of impact measurement and reporting among trustees.
- Asset managers are urged to balance standardization with flexibility when improving reports, going beyond selective case studies and providing a balanced view that includes trade-offs and unintended outcomes.
- In addition to these frameworks, a new Community Interest Group (CIG) focused on improving impact literacy is launching, with asset owners such as PGGM, Smart Pension, and Wiltshire Pension Fund backing the initiative.
