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Consultants’ ESG advice ‘paramount’ given new regulations

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Investment consultants are showing willingness to help trustees deal with regulatory changes relating to consideration of environmental, social and corporate governance (ESG) factors, but more work is needed, according to the Association of Member Nominated Trustees (AMNT) and UKSIF. 

The organisations today published a report on 16 investment consultants’ public commitment to bring regulatory guidance on ESG matters to the attention of pension scheme trustees. The report is billed as a guide for trustees to hold consultants to account on ESG matters.  

Since the consultants expressed their commitment, new rules have been adopted that require trustees, from October 2019, to state their policy on taking account of ESG considerations including climate change.

“The provision of quality advice on [ESG] issues by the UK investment consultant industry to its pension fund clients has become paramount in the light of recent regulatory developments,” said AMNT and UKSIF, a membership group promoting sustainable investment, in their report.

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The organisations identified services that trustees should be able to expect every consultant to offer as a minimum, such as manager selection, appointment and monitoring processes on ESG issues.

Best practice, according to the report, would include providing more advanced ESG advice, such as climate change scenario analysis and stress testing, where applicable to the consultants’ business model.

Janice Turner, co-chair of AMNT

Janice Turner, co-chair of AMNT

Minimum requirements must also extend to the consultants’ internal governance arrangements, according to the AMNT and UKSIF. Best practice in this area, they indicated, would include “integration of ESG objectives into staff performance evaluation… [and] mechanisms for assessing the effectiveness of their ESG activities, and transparency about that effectiveness to key stakeholders”.

Trustees should conduct a skills analysis of their investment consultants and ensure they understood consultants’ processes for including ESG in manager selection, appointment and monitoring, the report said.

The latter was “of particular importance” given the recent regulatory changes stemming from the Department of Work and Pensions.

“The new regulations, in effect, oblige any consultant of integrity to ensure their clients have the information and guidance”

Janice Turner, co-chair of AMNT

Consultants, meanwhile, should plan to be able to provide the minimum services as soon as possible “or risk losing clients that respond to the increasing demands laid upon them”, said the AMNT and UKSIF.

They, too, should focus in particular on fund manager selection, appointment and monitoring processes.

Janice Turner, co-chair of AMNT, said: “The investment consultants are key to enabling trustees to fulfil the new requirements: in our view, the new regulations, in effect, oblige any consultant of integrity to ensure their clients have the information and guidance in this regard that they should be entitled to expect from their professional advisor.

“By working with UKSIF to create a coalition of consultants that will recognise this, our intention is ensure that our members are given the professional support that they need.”

The report can be found here.

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