British pension funds neglect to consider the effects reports in their investment choices, research reveals
In August, a new Community Interest Group (CIG) will launch with a mission to enhance impact literacy across the sector and align fiduciary duty with long-term goals, including net-zero commitments. This initiative is backed by asset owners such as PGGM, Smart Pension, South Yorkshire Pensions Authority, Tyne and Wear Pension Fund, and Wiltshire Pension Fund.
According to Bruna Bauer, research manager for Pensions for Purpose, the current use of impact reports by UK pension funds is suboptimal. This is primarily due to limited impact literacy, uncertainty about report relevance, and low confidence in assessing quality. To address this, Bauer suggests several key recommendations.
First, pension funds should adopt established impact reporting frameworks, such as the Impact Performance Reporting Norms and the Operating Principles for Impact Management. These frameworks ensure report credibility, consistency, and meaningfulness for decision-making.
Second, increasing impact literacy among trustees and decision-makers is crucial. This involves training and engagement efforts to move beyond superficial reading of reports and integrate their insights into investment strategy.
Third, impact reports should be used as a basis for active questioning, feedback, and accountability. This encourages a culture of continual improvement and guards against greenwashing risks.
Fourth, engaging with sector initiatives like the new CIG is essential for improving impact literacy and aligning fiduciary duties with long-term sustainable goals.
Fifth, incorporating evolving environmental frameworks, such as the Taskforce on Nature-related Financial Disclosures (TNFD), complements established climate-related disclosures (TCFD). Familiarizing trustees with these frameworks helps them assess broader sustainability risks and opportunities that impact funds' portfolios.
The new report, titled 'Impact Integration: advancing reporting & management practices in pension funds', is based on interviews with 19 pension funds, asset managers, advisers, and consultants. The report highlights that many institutional investors remain unsure about how to use impact data meaningfully. It recommends that reports should be concise, materially relevant, and link impact to financial performance, especially for funds with goals like net zero.
Bauer emphasizes that the focus of reports should be on helping asset owners make informed decisions, not just creating marketing materials with another name. She also suggests that asset managers can improve reports by balancing standardization with flexibility.
Pensions for Purpose, alongside ShareAction, have been advocating for systemic risks, such as climate change, to be recognized as financially material and appropriately reflected in fiduciary duty. To meet goals like net-zero, there needs to be a broader systemic change in regulation and fiduciary duty frameworks, according to Bauer.
Emerging regulatory developments in the UK also stress sustainability reporting standards and assurance (under bodies like ARGA), which will further shape how pension funds integrate impact and sustainability data in the coming years. Overall, the combination of adopting robust frameworks, building internal capabilities, fostering active use of reports, and engaging with sector initiatives constitute best practice for improving impact integration in UK pension funds today.
- Private equity firms and development finance institutions can support the mission of the new Community Interest Group (CIG) by incorporating established impact reporting frameworks in their financial inclusion strategies.
- To ensure long-term wealth-management goals, business leaders must prioritize education-and-self-development programs that enhance impact literacy, particularly among pensions and decisions-makers.
- Financial institutions investing in biodiversity conservation projects can use the Operating Principles for Impact Management and the Impact Performance Reporting Norms to assess their effectiveness and quality of impact reports.
- Career-development opportunities in personal-finance and business sectors can be further enhanced by addressing the lack of confidence in assessing the quality of impact reports, a concern raised by Bruna Bauer of Pensions for Purpose.
- In alignment with net-zero commitments, investors can engage with sector initiatives like the new CIG to improve their understanding of sustainability issues and make informed decisions in their business, pensions, and private equity investments.
- To foster a culture of continual improvement and combat greenwashing risks, investing in strategic business sectors such as pensions should include active questioning, feedback, and accountability based on impact reports.
