Pension trustees should move beyond “box-ticking” exercises in sustainability efforts and instead adopt a more tailored approach to improve outcomes, experts said at a recent industry event in London.
Trustees urged to focus on governance over compliance
Kerry King, executive director of capital markets at Accounting for Sustainability, told attendees at Professional Pensions Live that trustees need to question what their decisions actually mean rather than following rigid frameworks. “Every scheme needs to be aware of misalignment between scenarios and modelling,” she said.
Louise Davey, trustee director and head of policy at the Independent Governance Group, emphasized the importance of robust governance. Trustees, she said, must ask the right questions of their managers and thoroughly document their approaches. Most trustees now accept that climate change will impact the economy and, by extension, their portfolios—but Davey warned that the financial implications for specific groups are often overlooked.
“There is a gap in how to deal with that,” she said. Trustees should be explicit about why they take—or don’t take—certain actions, ensuring their governance processes are well-documented and defensible.
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The discussion highlighted a shift in focus from mere compliance to meaningful action. While reporting requirements like those from the Taskforce on Climate-related Financial Disclosures (TCFD) have pushed climate risk into financial conversations, King argued the framework has been unfairly criticized. “TCFD was a game changer in getting climate risk recognized as a financial risk,” she said, though she acknowledged some “unintended consequences” along the way.
Davey suggested that progress in climate-related financial disclosures has been driven more by technological advancements and cost reductions than by policy changes. “Things have got cheaper rather than policy change,” she said, adding that the industry still needs better planning around supply and distribution risks.
Defined contribution schemes offer more flexibility
Davey noted that defined contribution (DC) schemes have more room for creative approaches compared to defined benefit (DB) plans. The scale of DC schemes also presents additional options, though she cautioned that the right questions depend on a scheme’s demographics.
“Challenges and different questions arise depending on who the members are,” she said. For example, younger members may have different risk tolerances and time horizons than those nearing retirement, requiring trustees to tailor their strategies accordingly.
King reinforced the role of pension funds in holding providers accountable. “Pension funds have a significant role in ensuring their providers are aligning to the mandate and making decisions that support the long-term objectives of the scheme,” she said. This alignment, she argued, is critical to avoiding superficial sustainability efforts that fail to deliver real impact.
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The conversation comes as the industry debates whether TCFD reporting requirements should be phased out. While some argue the framework has outlived its usefulness, others, like King, defend its role in shaping the current setting. The real challenge, she suggested, lies in moving beyond the framework’s limitations to drive tangible change.
Voting and engagement must reflect real-world change
Davey stressed that voting and engagement strategies need to evolve beyond symbolic gestures. “It needs to reflect real world change,” she said, pointing to the need for more proactive planning around supply chain risks and distribution challenges.
For trustees, this means not just ticking boxes but ensuring their actions align with the long-term interests of their members. The shift from compliance to governance, she argued, is where real progress will happen—though it requires a willingness to ask difficult questions and document the reasoning behind every decision.
King agreed, noting that the industry’s focus should remain on outcomes rather than processes. “A more tailored approach will really help outcomes,” she said, urging trustees to look beyond standard reporting requirements and consider what their decisions actually achieve.
