A more collaborative approach is needed across all stakeholders in order to achieve climate change goals, the Pensions Policy Institute (PPI) has argued, with Phoenix Group calling on industry bodies to “take the lead” to ensure a "harmonised" approach.

The comments were made in light of findings from a PPI report, sponsored by Phoenix Group, which revealed that more than a quarter (28 per cent) of schemes found having too much information to be a major problem when designing their approach to environmental, social and governance (ESG) factors.

In addition to this, 22 per cent of schemes highlighted conflicting information as a challenge, with the report arguing that this issue will require "strong leadership and industry-wide solutions".

More broadly, it described the lack of consistency and clarity in data and reporting as a "fundamental barrier" to improving the effectiveness of climate change risk mitigation in schemes' investment strategies.

Considering this, the report, which is the second in a three part series from the PPI, has recommended that joined-up goals, strategies and data sources across government and industry would improve scheme engagement with climate change.

In particular, it highlighted the importance of establishing a consensus on goals across all stakeholders to ensure that climate change considerations are integrated across the investment landscape and the practical steps needed to achieve this.

There was also a focus on the need to produce a centralised data source to provide a “starting point” for those schemes that are overwhelmed by the quantity of data available.

The report noted that further work may be needed around encouraging innovation from third parties.

It stated that pressure from the government, regulators, industry bodies and schemes themselves on those involved in schemes’ approach to climate change will help provide products and services that meet needs in integrating climate risk, as well as improving the data provided to schemes.

It added that there should be a greater focus on engagement and stewardship activities to ensure that companies across the board are making progress towards climate change goals.

However, it noted that there improvements are also needed around scheme decision makers’ knowledge and understanding of climate change, especially around the more practical aspects such as the implications of different investment approaches.

Commenting on the report, PPI senior policy researcher, Lauren Wilkinson, emphasised that focus on ESG has increased in recent years, with the landscape for climate change investment in particular "developing quickly".

“Policy and regulatory change are also putting further pressure on schemes to learn and innovate. Schemes may need to take a more proactive role in engaging with those acting on their behalf, including pension providers and asset managers," she said.

“A more joined-up approach across government and industry, especially in terms of practical steps, is also likely to be needed.”

Phoenix Group chief investment officer, Michael Eakins, added: “What is clear from this report is that there is no easy or quick fix to the issues we face.

“Both industry and government must work hand in hand to establish a consolidated strategy, with simpler, centralised data sources.

“This lack of a harmonised reporting process is proving to be a substantial barrier to improving the effectiveness of risk mitigation in schemes’ investment strategies.”

Adding to this, Phoenix Group head of investment solutions, Gareth Trainor, argued that the industry needs to "get their ducks in a row", noting that there are many many industry groups, regulations, initiatives, and competing propositions to consider, with a risk of both too much and too little leadership.

“The ecosystem needs to be simplified for pension schemes and their members," he said.

“Although many pensions’ schemes, advisers, asset managers, trustees and providers are doing a good job at incorporating ESG risks into their strategies, we believe that it is time for industry bodies to pool their collective capabilities and lead the sector by harmonising what best practice looks like.

Trainor continued: “Now is the time for industry bodies to step forward and take the lead so that practices around ESG can be standardised across the industry, including reporting, methodology, metrics and engagement.

“Given the complexity of the stakeholders within the market, and the various types of schemes and arrangements, it is difficult for pension schemes and trustees to stay on top of what is a very complex issue and to be clear on roles and responsibilities.

“It’s particularly challenging for smaller schemes. We believe industry bodies could help to clarify what is needed for all parties in the value chain.”

The report follows the launch of the Investment Consultants Sustainability Working Group's guide, which is expected to help support pension trustees in assessing their investment consultants on climate competency and help raise investment consultants' standards.

It also comes amid industry research, which revealed that 59 per cent of savers don't know if their pension is taking action on climate change, prompting industry organisations to warn that pension schemes are missing an opportunity to engage with savers on efforts to tackle climate change.

The Pensions Regulator has recently called on schemes to give greater consideration to climate change, whilst the government has also confirmed plans for climate reporting for large schemes, with new climate-related disclosure regulation also expected to be in place by COP26.

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