ESG: 6 steps to fire up your policy

With Environmental, Social & Governance (ESG) regulations coming through thick and fast, pension trustees’ collars are in danger of getting hotter than Christmas in Sydney.

So what questions should trustees pose to their advisers about ESG? There’s a lot to think about and it’s difficult to know where to start, or how to get useful answers.

It’s possible to talk for ever about terminology and methodology. But to be useful, these conversations need to focus on simple strategy and step-by-step actions.

The following six headings give trustees a simple conversation guide. They’re from the DC Investment Forum’s ESG report last year. (Full disclosure: we helped write it!)

Go through them in turn with your colleagues and advisers. Write down the answers where you can, and send people off to find answers to those you can’t.

1. What are our red lines?

What’s already on our list of stuff we won’t touch? Might we want to change this list? What would our sponsor want on the list? What would most members expect to see on it?

 

2. What do we know? 

What do we own? What do we know about what we own? How much do we know about where the sources of long-term risk and return are? How can we get a better understanding of what’s going on behind each company’s door? 

 

3. What do we believe? 

Do we believe environmental, social and governance factors affect what happens to our members’ money? Which factors are material to risk and return and which aren’t? Which do we believe our members would like us to consider? 

 

4. What could we do first?

What’s the smallest thing we could do to get started? It might be as simple as asking fund managers for data or running a member survey. 

 

5. What have we learned? 

How can we monitor the impact of what we’ve done? What data can we access that helps us make decisions in the future? 

 

6. What could we do next? 

What should we do now to move things on? It could be asking our fund managers to engage with the companies they believe to be a risk – or it could mean changing the way we invest. Think of it as turning a dial. It doesn’t have to be all the way on or all the way off.