All eight bulk annuity insurers have set net-zero carbon emissions targets for their asset portfolios, yet only two are signed up to the UK Stewardship Code 2020, analysis from LCP has revealed.

The consultancy’s biennial review into bulk annuity insurers’ approach to environmental, social, and governance (ESG) factors suggested that whilst most are putting “significant resource” into this area, not all are progressing at the same pace.

In particular, the research found that half of the insurers were already producing reporting in line with the taskforce for climate-related financial disclosures (TCFD) recommendations, with all eight expecting to do so in the near future.

However, Aviva and Scottish Widows were the only two insurers to have become signatories to the 2020 UK Stewardship Code, a result that LCP said it was "somewhat disappointed by".

The remaining insurers suggested that the code was less relevant to them as they did not invest in equities or said that they instead delegate to fund managers that have applied, despite the code stating that responsibility for following it cannot be delegated.

In light of this, LCP urged trustees and sponsoring employers to consider insurers’ ESG capabilities when entering into buy-ins and buyouts, emphasising that trustees have a fiduciary duty to consider how their members’ pensions are managed, which applies to buy-ins just as much as to other investments.

LCP partner, Tom Farrell, commented: “It’s clear that the bulk annuity insurers are upping their game on ESG and climate risk. But some of the insurers still remain early on their ESG journey and most are behind the curve on stewardship.

“We are encouraging the insurers to sign up to the UK Stewardship Code and have been highlighting other areas of potential improvement.

“It is important that pensions scheme trustees and sponsors factor ESG into their insurer selection decisions.

“In doing so, trustees and sponsoring employers can use their influence throughout the investment chain, fulfil their own ESG responsibilities and ensure that risks such as climate change are being managed appropriately (and thus ensure that members’ benefits are indeed secure).

“Given the growing significance of this topic, we are seeing members taking an increasing interest.”

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