The Pensions and Lifetime Savings Association (PLSA) has updated its stewardship and voting guidelines to ensure they remain relevant and interactive amid a rapidly evolving regulatory environment.
The guidelines feature five themes: social factors, cybersecurity, artificial intelligence (AI), biodiversity and dual-class asset structures.
For social factors, the guidelines highlighted that climate change poses “far-reaching global financial risks”.
The PLSA said that trustees demonstrating good practice are advised to assess the materiality of social factors as well, prioritise relevant ones, and integrate them into stewardship policies, voting guidelines, and asset manager communications for effective risk management and systemic risk mitigation in pension portfolios.
It added that investors should ensure companies are accountable for their social impacts by aligning with evolving industry good practices.
For cybersecurity, the PLSA said that risks can arise from the technology itself, from the people using it and the processes supporting it.
This includes risks to information as well as assets, and both internal risks and external risks, such as hacking.
Therefore, it said investors need to ensure that companies are managing these threats appropriately.
It added that investors should encourage companies to explicitly disclose the governance and oversight structures in place to identify and manage these risks, as well as provide timely reporting of any breaches and the measures taken in response.
The PLSA also highlighted risk generated by AI, including the amplification of discrimination, proliferation of misinformation and privacy violations – particularly in relation to generative technologies.
Looking at biodiversity, the association noted that investors and companies have a crucial role to play in the transition to sustainable business practices.
It added that changes to the natural world have direct impact on financial markets, supply chains and corporate profitability, with knock-on impact on pension scheme investments tied to sectors linked to biodiversity loss. As a result, it said pension schemes will need to begin to treat biodiversity with the same prominence given to climate change.
Lastly, on dual-class asset structures, the PLSA stated that with the growth in prevalence of these structures and the potential loosening of regulatory requirements around these structures raises “important questions” for investors concerned about integrity and operation of capital markets.
Tiffany Tsang, head of defined benefit, local government pension schemes and investment at PLSA, said: “As pension funds navigate the complex global investment landscape, it’s important that they blend an ambition to see good returns in the interest of scheme members with strong responsible investment practices.”
She added that one of the main ESG objectives is to cultivate sustainable value for both businesses and investors.
“The unfolding green transition is undeniably the most significant global growth avenue in the foreseeable future,” Tsang said.
She stressed that it is “pivotal” for schemes not to sideline their stewardship duties, particularly in times when ESG considerations might be “overshadowed”.
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