What is expected of trustees in pension schemes growth


The law also requires Pension Schemes to report on their ESG and climate-related activities.

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Pension scheme trustees have a fiduciary duty to maximise returns for their members. Scheme members expect them to be responsible and honest. To achieve this, they must make prudent investment decisions by considering all relevant financial and non-financial factors.

Environmental, social, and governance (ESG) factors form part of this non-financial information.

In evaluating investments, trustees ought to have a backdrop of ESG-related risks, which, due to insufficient data, may have yet to be quantified.

However, there is still a conflict between what methods have delivered the most profit for scheme members and what misfortune may befall a scheme that fails to move toward sustainability. For example, some trustees believe that sustainability talk is an environmental campaign at the expense of investment performance, while others fail to table the agenda at all.

The time horizon, for example, may be one reason trustees ignore ESG issues like green investments.

Sustainability is framed within the context of broader and long-term investment strategies. Regardless of the possibility of delivering positive, risk-adjusted investment returns, this long-term view may be a problem.

It may be assumed that since ESG risks and opportunities have a long-term nature, they are relevant for long-term investors such as pension funds. But it is sometimes obscure.

While the scheme members have a long-term view of their investments, trustees serve for a term. During this time, they are expected to ensure liquidity for daily obligations and deliver value for the scheme while in office.

Thus, resolving the conflict between incorporating ESG-friendly investments into pension funds and safeguarding returns becomes challenging. This can boil down to a choice between responsible investing and ensuring optimal returns.

Some possible solutions to the problem include having an internal policy on ESG considerations in investments, scaling up opportunities for green investments, and establishing regulatory certainty.

Many countries are moving towards mandatory disclosure. In the UK, for example, their investment regulations require trustees to include in their policy, their relation to social and environmental impact and corporate governance within their Share Incentive Plan.

The law also requires Pension Schemes to report on their ESG and climate-related activities.

To wrap it up, fiduciaries are expected to meet the duty of care and manage the investment as prudent investors. Thus, ESG integration is not a permit to ignore the quality of the investment approach, nor is it an indicator of financial offensiveness.

The right risk-return balance that meets the beneficiaries' objectives exists.

Wafubwa is the CEO of Enwealth Financial Services Ltd