Investment decisions by UK pension funds often disregard impact reports, according to a recent study
In a recent report titled Impact Integration: advancing reporting & management practices in pension funds, Bruna Bauer, research manager for Pensions for Purpose, suggests that UK pension funds can improve the use of impact reports in guiding investment decisions.
Bauer recommends that asset managers should focus on producing reports that help asset owners make informed decisions, not just marketing materials with another name. She suggests that reports should be concise, materially relevant, and link impact to financial performance, especially for funds with goals like net zero.
To achieve this, the report proposes several key recommendations. Firstly, embedding impact reporting into fiduciary decision-making rather than treating it as separate or supplementary. This means fund trustees and investment committees should use impact information actively when selecting, monitoring, and adjusting investments.
Secondly, improving the quality and consistency of impact data by standardizing metrics and using recognized principles such as those from the Operating Principles for Impact Management. This helps pension funds compare impact across investments and monitor performance effectively.
Thirdly, enhancing stakeholder engagement and training, so trustees and advisers better understand how impact information aligns with financial and ESG goals, leading to more informed and confident decisions.
Fourthly, developing internal impact management capabilities including risk assessment, goal-setting, and ongoing monitoring tied to impact objectives, enabling funds to move beyond simple reporting towards dynamic impact management.
Lastly, leveraging qualitative insights alongside quantitative data to capture broader systemic or societal benefits that numbers alone may not convey, thus enriching the investment narrative.
The report is based on 23 interviews conducted with 15 UK pension funds and other stakeholders, which highlighted both current usage and gaps in integrating impact reporting with investment management.
The report also emphasizes the growing regulatory and fiduciary focus on ESG and impact-related risks, underscoring the importance of robust governance and forward-looking frameworks like TNFD for managing systemic risks such as climate change and nature loss.
In addition, the report highlights the need for a broader systemic change in regulation and fiduciary duty frameworks to meet goals like net-zero. 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.
Asset owners backing the initiative include PGGM, Smart Pension, South Yorkshire Pensions Authority, Tyne and Wear Pension Fund, and Wiltshire Pension Fund. A new Community Interest Group (CIG) will launch in August to improve impact literacy across the sector and align fiduciary duty with long-term goals, including net-zero.
Bauer also suggests that asset managers can improve reports by balancing standardisation with flexibility. The report recommends adopting frameworks such as the Impact Performance Reporting Norms and the Operating Principles for Impact Management to improve the credibility and usability of impact reports.
[1] Impact Integration: advancing reporting & management practices in pension funds, Pensions for Purpose and Impact Frontiers, [2021]. [4] TNFD, Task Force on Climate-related Financial Disclosures, [2021].
- Bruna Bauer, research manager for Pensions for Purpose, suggests that UK pension funds can enhance their investment decisions by focusing on impact reports that are materially relevant and link impact to financial performance.
- To achieve this, the report proposes that impact reporting should be embedded into fiduciary decision-making, improving the quality and consistency of impact data, enhancing stakeholder engagement, and developing internal impact management capabilities.
- The report also suggests leveraging qualitative insights alongside quantitative data to capture broader systemic or societal benefits for a more comprehensive investment narrative.
- According to the report, the growing regulatory and fiduciary focus on ESG and impact-related risks underscores the importance of robust governance and forward-looking frameworks like TNFD for managing systemic risks such as climate change and nature loss.
- 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.
- Asset managers can improve the credibility and usability of impact reports by adopting frameworks such as the Impact Performance Reporting Norms and the Operating Principles for Impact Management, balancing standardisation with flexibility.
