I had the pleasure of attending a Quietroom dinner on Tuesday, where a brilliant panel explored ESG, Trump, and what lies ahead for investors. The conversation highlighted just how complex the landscape has become, and left me wondering whether pension schemes need collective support to navigate difficult questions.
ESG investing is a core part of institutional portfolios, but is facing growing pressure. In the US, some states are banning the consideration of ESG by public pension funds, and targeting asset managers like BlackRock for reducing exposure to fossil fuels or firearms. At the same time, human rights standards for the poor, immigrants, and ethnic minorities in the US are deteriorating.
Investors appear increasingly uneasy. In May, UK-based investors withdrew over £600 million from US equity funds. While concerns about tariffs played a role, wider political risks are becoming harder to ignore. Trade policy is volatile, regulation is uncertain, and the “S” in ESG — social and labour protection & human rights — is under threat.
Many ESG frameworks fail to capture human rights risks. A recent UN report found that most ESG tools do not assess alignment with international standards like the UN Guiding Principles on Business and Human Rights. This creates challenges for investors trying to balance financial exposure with ethical and reputational risks in markets such as the US.
Pension schemes are left to navigate these tensions alone. Should they divest, engage, or wait? How do they justify their decisions under fiduciary duty, especially with limited data and inconsistent standards?
A collective approach could help. A UK-wide advisory board could support schemes in assessing material ESG risks, including human rights, and recommend when to engage, escalate, or exit. It would not need to impose rules, but could add value by offering clarity and guidance.
Existing groups (e.g., Financial Reporting Council, Pensions UK, UN PRI) play an important role in setting standards and promoting good practice. But none are designed to offer coordinated guidance on politically sensitive or rights-based investment dilemmas.
To remain credible, ESG must respond to social and political risks where they occur, not just in the places we expect. A coordinated approach is needed to help schemes navigate increasingly complex and perilous waters.
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