Janus Henderson reflects on the challenges faced by Trustees

At Janus Henderson, we are keen to listen to trustees to better understand their day-to-day challenges and find ways that our firm can help address their needs.

As part of this listening exercise, we’ve recently undertaken a joint survey with mallowstreet, asking trustees their views on current industry workloads and job satisfaction, their plans’ long-term objectives and how they’re getting on with ESG integration, among other issues.

You can download the full report using the button on the right, but we wanted to share a few of the pressing issues highlighted to us by trustees, and let you know what Janus Henderson is doing to help.

Regulatory burden weighing on trustees

The most striking insight has to do with the industry’s increasing regulatory burden: 79% of survey respondents singled out the growing complexity of pensions as the top challenge now felt by trustees. They were clear that benefit equalisation, endgame planning and ESG were their three most significant regulatory-driven challenges.

Although trustees are taking advantage of industry accreditation schemes, member-nominated trustees haven’t taken up the chance to get accredited at nearly the same pace as their professional peers. As a key link between schemes and the underlying members, it’s important to flag this qualifications gap as it could lead to issues further down the road.

How Janus Henderson is helping

To help support trustees, we’ve launched a regular education programme tailored to trustees that covers a wide range of current market and industry topics. We’re now holding these hour-long interactive educational sessions on a quarterly basis, which earn attendees 1 hour of certified CPD credit.

We have also partnered with professional trustee firms to offer bespoke training on topics of their choice.

Challenges of ESG integration

Another survey insight is how knowledge sharing raises the industry’s awareness of ESG risks. While only 1% and 3% of respondents saw climate change and ESG risks as having a material impact on their ability to pay pensions, respectively, the majority felt that “a good asset manager should consider how to best account for ESG factors in their investment process”. What’s more, the awareness around the materiality of ESG risks grew significantly when trustees saw tangible applications of ESG within their investment process, either through case studies or by sharing experiences with peers.

The survey also uncovered that trustees who look after well-funded schemes with strong covenants viewed ESG alignment primarily as a way to act in a responsible manner, as opposed to less-funded peers who view it primarily as a regulatory compliance matter. This isn’t surprising given that schemes with weak covenants or low funding levels are likely to have priorities other than ESG.

How Janus Henderson is helping

We understand the power of knowledge sharing to fully grasp the investment implications of ESG. To help facilitate this, we’ve held several dialogues with pension trustees and investment consultants about the impact of making credit portfolios more climate aware. The conversations resulting from the case study, provided boards with a rich analysis of the steps involved in de-carbonising their holdings, as well as the yield, risks and carbon profile of the resulting portfolios.

ESG reporting a developing area

Staying on the subject of ESG, trustees told us they felt that reporting was their top ESG challenge. Data was singled out as a large factor driving this regulatory challenge, specifically the lack of a complete and standardised set of reporting data.

Schemes now in scope of TCFD (Task Force on Climate-related Financial Disclosures) reporting also highlighted some challenges with getting sufficient disclosures from their managers to address their reporting needs.

How Janus Henderson is helping

Our firm continues to make significant investments in our ESG capabilities. We realise the need for asset managers to take a leading role in helping pension funds tackle their ESG reporting requirements – especially in non-traditional asset classes, such as asset-backed securities (ABS), where the data issues highlighted by the survey are especially prevalent.

To this end, we’ve recently developed a proprietary analysis tool to gauge the carbon profile of our ABS investments by looking at the emissions of the assets they finance. This enables us to gauge the scope 3 carbon emissions of our ABS portfolios. Please reach out if you want to hear more about our proprietary approach.

While data standards are evolving, part of the reporting gaps are likely due to TCFD requirements being applied to large pension schemes before asset managers and companies. As signatory to the UN Principles for Responsible Investment, we challenge the entities in which we invest to improve their ESG disclosures.  We undertook over 1,000 ESG-related company engagements as a firm over 2021, with reporting and disclosures one of the most commonly raised issues.

We also recognise the importance of partnering with peers in the industry to promote higher ESG standards by taking part in industry-wide initiatives, such as the Asian Corporate Governance Association and the Sustainability Accounting Standards Board, among others.

Closing thoughts

The purpose of this joint survey was to give trustees a voice. Our firm seeks to put clients at the centre of what we do, so hearing about industry challenges first-hand is invaluable.

We will be partnering with mallowstreet shortly to run the survey again. But in the meantime, we hope you’ve found these insights useful, and please do not hesitate to contact us if you want to take part in any of our upcoming education sessions, discuss ESG integration or would like any further information.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

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