There is an urgency for fiduciary managers to adapt and evolve to the pressures of climate change, says EY's most recent ESG report.

Richard Giles, Senior Director and Community Lead, Pensions for Purpose, was delighted to be featured in EY's recently published report about fiduciary management and the challenges the financial sector must confront in the face of climate change. Richard commented: “In our experience climate investing is moving from a tick box exercise and becoming a cornerstone of strategy. There’s no single path. Some schemes have carved out formal ‘climate buckets’, allocating a fixed percentage of capital to green ventures. Other schemes weave climate risk across their entire portfolios. Regardless of method, one truth is clear: climate is no longer a side issue – it’s central to fiduciary responsibility.”

Climate change presents an urgent challenge, touching every corner of our planet and affecting every citizen. In its Climate Adaptation Report 2025, the Pensions Regulator stated: “Climate change remains a major systemic financial risk and a threat to the long-term sustainability of the UK’s occupational pensions.” This highlights the urgency for fiduciary managers to adapt and evolve to the pressures of climate change, as the sustainability of the long-term pensions landscape is at stake.

In the UK, the pensions fiduciary management market is working to align with evolving environmental, social and governance (ESG) practices. During 2024, increased pressure from regulators resulted in larger fines for pension schemes who were not complying with ESG regulations. This underscores the necessity for fiduciary managers to embrace resilient and reliable ESG frameworks, which are able to mitigate risks.

EY’s report, ‘ESG investing under fiduciary management: how the UK pensions fiduciary management market is keeping pace with evolving ESG practices’, sheds light on how fiduciary managers are navigating challenges, and focuses on five key pillars – investment integration, stewardship, risk management, governance and reporting. The fifth edition of EY’s report series, which includes the industry-wide results of their 2025 annual ESG survey, demonstrates obstacles with increasing allocations to investments focused on ESG remain.

While the report shows governance structures aligned with ESG are well-established for the majority of fiduciary managers, it makes clear challenges around reporting exist across the board, particularly the inadequacy of standardisation, and the continued need for innovation in reporting measures. Respondents raised concerns about current regulations increasing the difficulty of developing ESG-focused funds, and the misalignment of Sustainability Disclosure Regulations with multi-asset portfolios. Some fiduciary managers also lack formal climate transition plans to align themselves with global climate goals; however, there is a strong commitment to transition to net zero within portfolios and strategies.

It is pivotal fiduciary managers continue to engage with ESG practices, and that their investing continually evolves to mitigate the risks we all face.