DB pensions schemes trustees are planning to reduce their training on RI (Responsible Investment) issues with only a fifth (20%) giving it focus, according to research from Hymans Robertson. This change will affect their ability to make informed decisions about investment strategies, potentially leaving schemes significantly exposed to major systemic risks like climate change, and other risks like greenwashing, warns the leading pensions and financial services consultancy.

The research shows that despite risks associated with environmental and social factors continually evolving, the number of trustees planning to take training on RI issues in 2023 has decreased to a fifth (20%) from a high of 31% in 2021 and just over a quarter (26%) in 2020. When it comes to climate change and actively seeking to understand how climate risks impact their long-term objectives, just under a third (30%) of respondents plan to commission analysis on the matter. While this is an increase from the 2021 figure of 28%, it is only slight.

DB Pensions Scheme trustees were also asked in the research how they are planning for RI oversight as part of their governance programme. Less than half of respondents (45%) said they planned to commission a RI investment review in 2022 and, although that is an increase from just over a fifth (21%) in 2021, it is still a significant reduction from the all-time high of nearly two thirds (57%) in 2020. An RI review provides trustees with key information around how their managers are handling the sustainability of their investments including information around stewardship.

Commenting on the research findings and the need for trustees to continually renew their understanding around RI, Mhairi Gooch, Senior Responsible Investment Consultant and Net Zero Lead at Hymans Robertson, said:

“Of the trustees who participated in our research the numbers who intend to review their investments from an RI perspective, particularly looking at climate change risks, is worryingly low. When coupled with the fall in trustees planning to receive training on the matter or, including RI considerations in their upcoming governance plans the conclusion is, at best, that trustees feel their current RI approach and investments are sustainable and aligning with the transition to a low carbon economy. At worst, it points to overconfidence or, a misunderstanding of the constantly changing nature of climate change.

“Whichever is the case low uptake of RI training could result in unknown exposure to major systemic risks: climate change and biodiversity loss being two of the most relevant today and other emerging risks like greenwashing. Greenwashing in this context, refers to products or investments that are portrayed as more environmentally risk aware and eco-friendly than they actually are, and it largely represents financial and reputational risk. It came into sharp view once again with FCA’s consultation on sustainability disclosures and anti-greenwashing closing earlier this year. 

“As the risks and opportunities around climate change evolve, trustees will need to rely on their own understanding to make decisions, meaning a regular review of the RI status of their strategies is a must, as is regularly assessing how their policies and mandates are being met by their investment managers. This is one way for trustees to stay abreast of how their funds are likely to perform in a rapidly shifting investment landscape.”