UK pension funds disregard impact reports during their investment decisions, study reveals
In a recent report titled "Impact Integration: advancing reporting & management practices in pension funds," researchers have outlined steps to enhance the credibility and usability of impact reports in the UK pension fund sector. The report, drawn from interviews with 19 pension funds, asset managers, advisers, and consultants, highlights the need for pension funds to strengthen their internal understanding of impact and actively engage with impact reports.
The report recommends the adoption of established frameworks such as the Impact Performance Reporting Norms and the Operating Principles for Impact Management. These frameworks help ensure consistency, reliability, and relevance in impact data, and are crucial in reducing the risk of reports serving merely as marketing tools prone to greenwashing.
Bruna Bauer, research manager for Pensions for Purpose, suggests that the first step for pension funds to use impact reports to drive investment decisions is to read the reports and assess their relevance. Bauer also emphasizes the importance of reports providing a balanced view, including trade-offs and unintended outcomes.
To move beyond box-ticking, funds must build stronger internal understanding of impact, especially among trustees, and use reporting as a basis for questions, feedback, and accountability. This will help integrate impact information more meaningfully into investment decision-making.
Additional recommendations include launching a Community Interest Group (CIG) aimed at improving impact literacy across the pension fund sector, aligning fiduciary duties with long-term goals such as net-zero, and encouraging trustees to assess the quality and relevance of impact reports critically.
Bauer suggests that reports should help asset owners make informed decisions, not just serve as marketing materials. Reports should be concise, materially relevant, and link impact to financial performance, especially for funds with goals like net zero. Asset managers should balance standardization with flexibility in impact reports, using shared metrics where possible, but allowing space for investment-specific nuance.
The report also highlights challenges asset managers face in collating quality data and the tendency to present polished narratives rather than substantive evidence, which can undermine trust in reporting. Low confidence, limited impact literacy, and uncertainty about what constitutes useful data are common reasons for not fully engaging with impact reports.
In other news, renewable energy firm Renalfa has raised €315M from an EBRD-led investor group, while CorPower Ocean has landed a €40m EU grant for a wave energy farm. Meanwhile, a new Community Interest Group (CIG) will launch in August to improve impact literacy across the sector and align fiduciary duty with long-term goals, including net-zero. Asset owners backing the initiative include PGGM, Smart Pension, South Yorkshire Pensions Authority, Tyne and Wear Pension Fund, and Wiltshire Pension Fund. Pensions for Purpose, alongside ShareAction, have been advocating for systemic risks, such as climate change, to be recognized as financially material and appropriately reflected in fiduciary duty to meet goals like net-zero. The Resonance housing initiative has welcomed tenants as the fund has closed.
[1] Impact Integration: advancing reporting & management practices in pension funds [4] Report findings on UK pension funds' engagement with impact reports and investment decisions
- For pension funds to enhance their social impact, they must embrace development finance opportunities in areas like energy transition, as shown by the report "Impact Integration."
- To ensure impact reports drive informed investment decisions, pension funds should focus on establishing a strong internal understanding of impact, following the recommendations in the "Impact Integration" report.
- In the spirit of aligning fiduciary duties with long-term goals such as net-zero, the new Community Interest Group (CIG) aims to improve impact literacy and challenge reporting practices in the pension fund sector, as endorsed by organizations like PGGM and Wiltshire Pension Fund.
