From 1 October, Trustees of DB and DC schemes will have to meet the requirements of the 2018 investment regulations, to agree their approach to responsible investment and update their Statement of Investment Principles.
More than eight out of ten Trustees questioned by Hymans Robertson, said they’d faced challenges when implementing the new RI strategy. These included lack of clarity around the regulator’s expectations (43%), low engagement from members (44%), limited time and resource (40%) and limited knowledge and understanding around RI issues (40%). Nearly a quarter (24%) also said that the language used around RI was not well defined and clear. Despite these numerous challenges only 7% of Trustees opposed the regulations.
Commenting on the commitment of trustees to understand the RI requirements, Simon Jones, Head of Responsible Investment at Hymans Robertson, says: “It great to see the enthusiasm and support trustees have given to the introduction of these regulations. They have clearly overcome the challenges they’ve faced and given a great amount of time to discuss the changes in their meetings. With a fifth of trustees dedicating more than five hours to the matter, many have clearly ensured that the implementation of the strategy took priority this year. The fact that over two thirds of those questioned said they knew a lot about the regulation is encouraging too. The objective of the regulations is to drive changes in behaviour by asset owners, rather than simply being a box ticking exercise. It appears trustees have realised this. RI should form an integral part of trustees’ approach to investment decision. They should ensure that, where possible, the risks posed by Environmental, Social and Governance (ESG) factors are considered in to the extent that they could materially affect financial outcomes.
“It’s also been encouraging to see that the response by trustees has been more than just talk with many trustees having taken action in response to the regulations. 84% of trustees questioned had increased training on responsible investment. This is vital in building knowledge and ensuring that when material changes to investment arrangements are made, questions are asked about the extent to which ESG issues are relevant in the decision-making process. Trustees also need to provide greater challenge to those, such as investment managers, who act on their behalf. Three quarters (73%) had improved reporting on and oversight of investment managers, while half said they’d changed member engagement strategy.”
Commenting on the benefits of implementing an RI strategy, Simon continues: “Trustees also really seem to understand the benefits that implementing an RI strategy can provide. I was pleased to see that half (49%) said they thought implementing and RI strategy will improve investment returns which represents a significant shift in the attitude that has prevailed until now, that investing responsibly will harm returns. It isn’t just their opinion that is important – many are also seeing the pressure from members. Nearly a third (30%) have said that they think their members care just as much about where their money is invested as they do about investment returns. At the same time a third of trustees (34%) said that they thought the scheme or scheme members would be the main beneficiaries of the new regulations.
“While trustees’ support for, enthusiasm about and commitment to these regulations is a big step in the right direction for ensuring RI is at the heart of investment decision making, it shouldn’t be considered ‘job done’. It is vital that RI doesn’t drop off the priority list once the deadline for meeting the regulatory requirements has passed, but rather that trustees continue to embed RI into their day-to-day activities. Trustees need to continue to question their investment managers and their advisors, recognising that challenge can be a catalyst for improving standard. But they should also consider whether ESG issues can be more directly integrated into their investment arrangements as the reallocation of capital is what will ultimate create real change.”
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