Under increasing pressure, companies look to their trustees to consider their investment obligations in light of how it could affect the sponsor’s financial standing – and critically – the amount of support offered to their Defined Benefit Pension Schemes. LCP is calling on trustees to give strong consideration to these elements, and to study a company’s investment footprint carefully.
In practical terms, trustees should closely examine the terms and impact of their company’s ESG policies – or, where none exist, work with their sponsor to create a framework that guides their investments, helps recognise relevant opportunities, and keeps them compliant with their net zero commitments. With the funds and portfolio performance in mind, trustees must ensure it is clearly communicated – both at board level, and with the members of the DB pension scheme – to encourage a robust and effective approach to ESG-related investing.
Transparent and consistent communication should be a priority. Openly discussing ESG matters – such as portfolio construction, asset selection, and risk management – is crucial, as it helps create a cohesive understanding of the company’s responsibility and commitments to their stakeholders. Not only will it build trust, but it also keeps sponsors and trustees aware of where they stand. Robust reporting and capturing of ESG performance data further strengthens the company’s commitment to this imperative agenda, as well as reassuring stakeholders that the right measures are being taken when it comes to ESG investing.
Cross-fertilizing ESG considerations across the whole of a company’s activities is now critical for success. From the structure of its investments, to the way ESG is considered in its operations, to considering the wider effects of a business’ strategy, trustees must aim to outperform their peers. It is not just enough to think solely about the performance of investments; a broad consideration of the company’s impacts – both positive and negative – should be taken into account.
Looking ahead, it is essential that trustees are charged with considering favourable, ethical decisions on behalf of the members of their DB pension scheme, and the wider sponsoring company. This must be done in collaboration with their sponsor, with a long-term strategy for successfully aligning ESG and investment management objectives. It requires a top-down approach – with strong governance from stakeholder boards – to ensure an effective route to the realisation of net zero goals. This means that trustees must stay one step ahead of any legislation – and the ever-changing climate – so their sponsor continues to thrive and their members remain secure.
As companies strive to reach their net zero commitments, trustees must make sure to assess the implications for their sponsor’s investment needs. By exploring the potential resources, carefully investigating the ESG policies in detail, and enlisting the support of board members, trustees can assure a robust and successful ESG strategy, offering members of the Defined Benefit Pension Scheme peace of mind that their pension is secure.