The UK’s Department for Work and Pensions (DWP) is seeking views on the effectiveness of occupational pension schemes’ current policies and practices in relation to social factors.
It wanted to understand whether these were “sufficiently robust” and what the government could do to ensure that trustees were able to meet their legal obligations.
Under legislative changes decided in 2018, most occupational pension schemes are required to disclose a policy on financially material considerations including environmental, social and governance (ESG) factors, and to report on the implementation thereof.
Under the recently passed Pension Schemes Act pension schemes will from this autumn also be required to report specifically on the climate risk associated with their investments. Another government department today launched a consultation on mandatory climate risk reporting by companies, which should help pension funds meet their obligations.
On the topic of trustees’ consideration of social factors, pensions minister Guy Opperman said he was proud of the progress made in moving environmental and climate issues up the pensions agenda, but that “climate change should not be trustees’ sole consideration”.
In the foreword to the call for evidence, he said that many pension scheme trustees’ policies in relation to social factors are “high level and unillluminating”.
“There is a concern that trustees are ill-equipped to deal with financially material social factors in their investments,” the minister continued. “How well do they, and those acting on their behalf, understand what is happening in the supply chains? How exposed are they to the risks posed by action on these issues? And what are they doing in response?”.
According to the minister, the call for evidence is being launched after he found “performance to be mixed” at large pension schemes. In February he wrote to 40 of the largest schemes seeking information about their ESG policies and their stewardship policies and practices.
The call for evidence is open for 12 weeks. According to the government it is aimed at pension scheme trustees and advisers and their representative bodies, pension scheme members and beneficiaries, civil society organisations, and any other interested stakeholders.