Defined benefit pension fund trustees have been warned to push for a more critical understanding of the role of ESG when their schemes target buy-in or buyout deals, according to a new report by Hymans Robertson.
The report, Spotlight: ESG in risk transfer transactions, outlines four key areas of responsible investment – culture, integration, stewardship and transparency – that trustees should use to assess a potential insurer with which to partner. These key areas, when considered together, can help trustees develop a longer-term view that was not necessarily encouraged by previous guidance.
Paul Hewitson, head of ESG for risk transfer at Hymans Robertson, said: “A DB trustee’s key duty is to act in the best interests of its members and, for those pension schemes targeting buyout, part of that is to partner with insurers they believe can fulfil the responsibility of paying its members’ benefits long into the future. With the introduction of climate regulations, trustees are now required to consider the risks and opportunities for their scheme that climate change will bring over appropriate short, medium and long-term time periods.”
He said that past guidance traditionally led to a focus on material short-term risks, and not necessarily explicit consideration of the longer-term impacts of ESG factors and climate change.
“As it’s likely that emerging risks like climate change could also affect insurers’ future financial strength, trustees should take the time to understand how an insurer integrates ESG factors and climate-related risks into their standard processes and investment decision making,” he said.
Trustees can then compare an insurers’ approach with their own scheme’s, which will ultimately help them to feel reassured that any risk transfer transaction will be in the best interest of members in the long-term, Hewitson explained.
RepRisk partners with K2 Integrity to strenthen ESG advisory offering
ESG data science firm RepRisk has partenered with K2 Integrity, a compliance and risk advisory firm, to bolster K2 Integrity’s ESG advisory offering.
Through the new partnership, RepRisk will provide K2 Integrity with access to its independent ESG risk data to incorporate into the process and analysis used in K2 Integrity’s new ESG fund certification solution.
Claimed to be the first-of-its-kind, the certification solution analyses whether managers and funds are compliant with ESG regulations, it was announced.
“When we look at our data, one of every five climate-related ESG incidents over the past two years was also linked to misleading communication (greenwashing). This presents a challenge for investors when it comes to separating empty promises from meaningful action, and a challenge for funds in proving their credentials,” said Alexandra Mihailescu Cichon, executive vice president at RepRisk.
“We are excited to partner with K2 Integrity to help tackle this challenge by making our unique ESG risk data part of their certification process. Together, we can help bring greater transparency and accountability to the market – while also supporting investment firms in their efforts towards more sustainable investment,” she added.
K2 Integrity’s new solution aims to support investment firms and their managers as they encounter increasing ESG regulations, including those from the Securities and Exchange Commission in the US and the recent Sustainable Finance Disclosure Regulation (SFDR) in Europe.
The solution provides managers with independent, rigorous analyses of their products to certify they are compliant with local ESG regulations and deliver on their ESG targets as advertised, to help address the industry-wide issue of greenwashing.
Swiss asset management association sets up sustainable finance regulatory framework
AMAS, the Swiss asset management association has set up a self-regulatory framework in the field of sustainable finance for collective investment schemes.
The new framework, which comes into force on 30 September, defines binding requirements for financial institutions, product design and disclosures to investors.
Organisations that are not yet members of AMAS can also conform with the regulation.
The key points of the self-regulatory framework include an obligation for asset managers to rely on the necessary knowledge with regard to sustainability, and on the necessary infrastructure and resources to implement the requirements in their investment strategies.
Moreover, asset managers are required to report on sustainability policies and approaches, metrics, data and analysis tools used in their investment strategy, and present the principles of actively practiced stewardship.
Exclusion or ESG integration alone are no longer sufficient as investment approaches to list a fund as sustainable. The framework also requires asset managers to report to investors transparently, using comparable indicators.