Growing regulatory complexity is the top challenge for 79% of UK pension professionals, with ESG requirements key contributors to this, according to survey research carried out by industry community network Mallowstreet.

It found that most schemes have been adopting ESG practices to comply with regulations, with just 3% of schemes saying that climate change risk will have the most material impact on their ability to pay pensions in the future.

An additional 1% say this about other ESG risks.

However, schemes with a funding level above 90% tend to consider acting in a responsible manner as the most important factor in defining their ESG approach, with this also applying to schemes with a strong sponsor.

According to the survey, 45% of schemes with a strong covenant are focussed on ESG integration, but this drops to 17% of schemes with a sponsor tending to weak.

It also found that just 12% of schemes see covenant risk as material to their endgame journey.

One of the recommendations resulting from the research was therefore that pension professionals increase their focus on managing and monitoring the covenant as this would “help the relationship with the sponsor, can improve funding and create bandwidth for other requirements (eg, ESG and the climate transition)”.

Mallowstreet surveyed over 160 trustees and pensions professionals in the fourth quarter last year, in association with Janus Henderson Investors.

IOSCO to study voluntary carbon markets

IOSCO, the umbrella group for securities regulators, has said it will carry out an in-depth review of carbon markets to identify the vulnerabilities in nascent voluntary carbon markets.

The review will also look at the transparency and integrity in the functioning of carbon markets from the perspective of financial regulation.

The work stream was approved last week as part of IOSCO’s 2022 work plan to develop sustainable finance.

In a statement, IOSCO today said that at its meeting on 9 March, the board emphasised the importance of mitigating greenwashing and doing what was necessary to create reliable information on sustainability impacts for investors.

IOSCO also said it was planning a “timely and thorough” review of soon-to-be-published IFRS International Sustainability Standards Board (ISSB) exposure drafts of proposed climate and general sustainability disclosure requirements, and will in parallel push forward work to develop assurance standards.

The regulators forum also said it would step up its engagement with national regulators and market participants to push for the implementation of its recommendations addressed to asset management and ESG ratings and data providers.

“IOSCO has an immense set of tasks ahead of itself in 2022,” said Erik Thedéen, chair of IOSCO’s sustainable finance task force and head of the Swedish regulator.

“Our work on endorsing the ISSB standards is part of a wider push by IOSCO to professionalise all aspects of sustainable finance. The Task Force IOSCO has asked me to lead will work intensively in 2022 to deliver across a range of key issues which have to be worked out if markets are to gear up to supporting investors’ desire to invest in ESG.”

More investors join CDP company disclosure request

Almost 100 more financial institutions, including asset managers and asset owners, have backed a request to corporate boards that they disclose data on the companies’ environmental impact via CDP’s disclosure platform.

New asset owners to have put their name to the request include University Pension Plan in Canada and Fonds de Réserve Constitutionnel de Monaco.

The boards of companies worth $105trn (€96bn) in market cap will receive the request, which has the backing of investors such as Allianz, Amundi, AXA, and CalPERS.

Nearly 4,000 companies, including Berkshire Hathaway and Chevron, did not respond to the request for disclosure from financial institutions last year, however.

This year, CDP’s questionnaires will include questions on biodiversity impacts and more specific questions on company climate transition plans.

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