made by trustees unless they have a strong set of beliefs. Smart: In an ideal world, boards would run their companies with a view to all of these future risks. Fund managers would pick companies based on who’s doing that well and trustees would not have to do anything because the world would work perfectly. But it does not work like that.


The reality is, in some areas, it is still much more financially productive for a company to not act sustainably and take the fine that comes their way. It is investors who have to put that challenge on through fund managers. Segars: It goes back to stewardship and engagement. It is about encouraging carbon emitting companies to transition, in a just way, to become more sustainable companies. The energy com- panies are going through that process, but it is about the role that we can play as investors, individually and collectively, to help facilitate that. Delo: The essence of the problem here is that these are long- term issues and we do not know when they will manifest them- selves. Many members may, therefore, be through a scheme and gone before any of these issues do manifest themselves. This has to be considered in the context of an investment


If we are going to do more infrastructure and ESG, the


governance cost will be higher. Lydia Fearn, Lane Clark & Peacock


industry has always been judged in the short term – short term returns, performance against benchmarks, etc. Until we get away from that, we are going to end up in a bureaucratic mess, because it feels like a writing job as opposed to critical long term risk decision-making. The industry is working hard on TCFD reports that are impor- tant but few members will read. It is almost like you want the risks to manifest themselves to prove that you we were right to have done all this, but in reality we also do not want them to manifest themselves. Humble: Stewardship and engagement are dealing with these risks. Capital flows and analyst assessments are much longer term, whereas engagement is changing things now because nobody wants difficult questions asked at the AGM. Smart: But they also want a share price that holds up and mak- ing a profit does that. As investors, we do not necessarily react in a consistent way in our engagement and in what we buy and how we reward performance. Humble: We look at things systematically, which helps us to con- sistently communicate with members. Defence stocks are a good example where the knee jerk reaction a few months ago made such stocks questionable, but suddenly they are quite demonstrably doing good. If you have a systematic approach to assessing these things, that would not have been a shock to you. Delo: If you are going to retire imminently, what do you wish the trustees would have done? Worried about these risks or given advanced thought to how many bonds they were sitting on that have just been flattened in value? We are worrying about members being disadvantaged down the track because of risks that blow up and make their retire- ment worse than it could have been. But we have just had one of these for some members and there could be bigger ones to come. Looking at the totality of all of these risks and issues in a proportionate way is a massive task. Segars: That is the circle we have to square, as trustees need to look at both of those at the same time. Smart: As the regulator, we have to understand the risks savers face, quantify them, apply our resources in ways that mitigates the biggest risks – accepting there are some we cannot mitigate – and then measure our outcomes. That is a similar process for trustees. There are certain risks and opportunities savers are exposed to that trustees try to mitigate or take advantage of, but they only have a certain amount of governance time. Fearn: It goes back to demographics. If you have a bunch of members coming through as well those starting to invest in the early days, we tend to look within the cohorts to make sure we are aware of what is going on within each part of the journey.


November 2022 portfolio institutional roundtable: Defined contribution


The biggest issue we saw after the mini-budget was the annuity 19


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