Management Consulting

Defined contribution (DC) pension schemes are facing significant challenges in integrating sustainability into their investment portfolios. Aon’s 2024 DC Pension Scheme Survey revealed that while there has been some progress in embedding responsible investment practices, many schemes are still lagging. Specifically, only 18% of schemes have invested their default funds solely in ESG-screened options, a marginal increase from 15% in 2022. Furthermore, the proportion of schemes assessing their investment options against ESG criteria remains static at 46%. This indicates a hesitance among many DC schemes to fully embrace responsible investing, often due to fears of missing out on returns from traditionally high-performing sectors like oil and gas, which are typically excluded from sustainable investment strategies. To address these issues, Aon proposed a tailored framework for responsible investment that encourages DC schemes to make informed and timely decisions. This framework includes agreeing on investment principles, understanding current investments, considering both opportunities and risks, and regularly reviewing investment approaches. By adopting this framework, DC schemes can better navigate the complexities of ESG investing, mitigate long-term financial risks associated with sustainability issues, and capitalize on emerging investment opportunities in a transitioning economy. The potential benefits of implementing this framework are substantial. By aligning their investment strategies with sustainability goals, DC schemes can not only enhance their members' retirement outcomes but also contribute positively to environmental and social issues. This proactive approach is essential for ensuring that the world into which members are retiring is sustainable and habitable, ultimately safeguarding their financial futures against the backdrop of climate change and other pressing global challenges.