Over a quarter (27 per cent) of fiduciary managers (FM) do not have a net-zero target, despite many pension schemes having clear climate change objectives for their investment portfolios, analysis from XPS Pensions Group has revealed.

The research, part of the group’s report, Progression of UK fiduciary managers’ approach to environmental, social and governance (ESG) integration, also found that over 50 per cent of FMs did not have minimum explicit climate-related requirements for the underlying funds in their investment strategies, indicating that many fiduciary managers are not fully integrating climate-related issues within their investment strategies.

In addition to this, even where FMs did set targets, there was evidence that the industry was not taking an active approach to stewardship, with only 40 per cent of FMs reported exercising influence of voting activities of the underlying managers or assets they invest in.

XPS highlighted the findings as evidence of a mismatch between trustees and FMs approach to climate change, warning that trustees could find themselves in a scenario where the green objectives they have set for their scheme prove unachievable as a result of the fiduciary arrangements that they have made.

However, the analysis indicated that FMs had made some progress in integrating ESG into their investment approach, with 27 per cent of managers receiving a ‘green’ overall rating from the consultancy, marking the highest level since the survey was launched.

XPS Pensions Gorup partner, André Kerr, stated: “While it’s clear that fiduciary managers continue to make progress in integrating ESG into their day-to-day investment decisions, there are still some areas where there may be a mismatch between the commitments trustees have made and the actions of the FM.

“Trustees must be active in examining their FM’s ESG practices and ensuring that these align with their scheme’s sustainability goals.”

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