Pensions see ESG ‘megatrend’

Defined benefit (DB) pension schemes are taking an increased focus on de-risking their investment strategy, including an increasing consideration of ESG matters, according to Aon’s Global Pension Risk Survey 2021/22.

Aon partner, Callum Mackenzie, identified this focus on ESG as a "megatrend" that has been "shaping the investment landscape", suggesting that this may be a result of the increasing awareness of both regulatory shifts and the impact of climate change.

“But schemes are also supporting ESG considerations with action – a fifth of schemes have already made changes to their investments, having reviewed their ESG policies over the last two years," he continued. "These steps have often involved moving to ESG benchmarks, screening out poor ESG holdings and focusing investment on assets that will make a positive impact on society.

“We believe that this is a trend that will continue, as 85 per cent of respondents have either already reviewed or will review climate change risks in the next two years. They will look beyond the physical risks and be proactive, assessing how financial gains can be sought from the transition towards a lower-carbon environment.”

In addition to this, Mackenzie suggested that, as climate risk becomes an integral part of investment decision-making, investors will introduce measures to help them make better decisions and gain a greater understanding of the impact of their portfolio.

“Energy transition funds are also popular in this space. This makes it clear that pension schemes can certainly play a big role in the drive towards building an economic infrastructure for the future.”

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