Are pension funds experiencing disclosure overload?

July 9, 2021

This week, Minerva CEO Sarah Wilson spoke to Mallowstreet editor Sandra Wolf for a feature on the growing reporting burden facing UK pension schemes. Sarah discusses the challenges schemes face and how they can meet the new requirements – as well as the significant governance benefits the reporting process can bring. The full article can be accessed freely at the Mallowstreet website.

Some of the largest pension schemes are acting as trailblazers by publishing responsible investment or stewardship reports, but even they appear to be struggling to keep up with the numerous reporting requirements under mandatory and voluntary frameworks. Are UK funds suffering from disclosure overload?

Last week, chancellor Rishi Sunak announced plans to legislate for new integrated Sustainability Disclosure Requirements that “will bring together and streamline existing climate reporting requirements and go further to ensure consumers and investors have the information they need to make informed investment decisions and drive positive environmental impact”. 

With the shift to defined contribution and pooled fund investment, pension schemes have become more removed from the voting and stewardship process at investee companies. This is an area of concern for pensions minister Guy Opperman, who this year set up a Taskforce on Pension Scheme Voting Implementation to make recommendations on how to reform shareholder voting, expected to report back in the autumn.

There could well be changes, as the regulatory screw is being tightened on how investors, asset managers and listed firms should assess and manage real world risks affecting investments and act as stewards for members’ money.

The top-down pressure seems to be working; the requirement to publish implementation statements from October is certainly “triggering thoughts” among trustees, says Sarah Wilson, chief executive of voting and research provider Minerva Analytics.

Wilson notes that funds feel overwhelmed with reporting, but though the different frameworks – Stewardship Code, implementation statement, Task Force on Climate-related Financial Disclosures (TCFD), Principles for Responsible Investment (PRI) etc – each come with subtly different reporting requirements, they can be rolled into one, she argues.

“You could tie TCFD reporting into PRI and stewardship reporting,” she says. “You don’t have to write 25 reports, you can write one and cover off all of these.”  While the wording of the requirements under each framework might be slightly different, what is really required is often the same, she notes.  

Producing a governance document such as a stewardship report is firstly “a great way for a committee to take some time out, stand back, look at what [the fund] is doing and asking questions”, she observes, but it is also “a fantastic way for trustees to up their game on communications”.

But who should trustees be communicating with – regulators or members? “The Financial Reporting Council (FRC) would be thrilled if people’s writing could address as wide an audience as possible,” says Wilson, noting that the FRC has mentioned reports should be short, sharp and to the point.

She highlights master trust Nest as an example of good practice, saying the scheme is making jargon accessible. “There is no reason why you can’t have a high-level executive summary… which then leads to a more comprehensive document that people can jump in and out of on different issues,” she says. “It is fundamental to the role of the trustee to be the interpreter for the members.” 

This article initially appeared on the pension industry news and networking site Mallowstreet. The full article is available to read for free here.

Last Updated: 9 July 2021