The UK government will be pressing ahead with implementing a requirement for certain pension schemes to calculate and report a metric setting out the extent to which their investments are aligned with the Paris Agreement goal of limiting global temperature rises.
In its response to its consultation on the matter, the Department for Work and Pensions (DWP) acknowledged concerns with methodological challenges to do with portfolio alignment metrics, but said it did not think these strong enough to delay implementation or prescribe one metric over others.
As respondents had already recognised, an “as far as they are able” principle would help address data availability concerns, the DWP said.
In addition, it acknowledged that “it is not an entirely optimal outcome” for trustees to be required to report against alignment metrics before asset managers are required to report them, but again said it did not consider this a strong enough reason for delay.
A concern that had been raised in response to the consultation was that requiring use of portfolio alignment metrics could unintentionally incentivise increased divestment, to the detriment of driving change at investee companies via engagement.
This not the government’s intention, and the DWP said it welcomed the emphasis that some respondents placed on linking portfolio alignment and stewardship more closely.
The new requirement will apply from 1 October 2022 to trustees of occupational pension schemes with £1bn or more and authorised pension schemes.
The DWP also released new non-statutory and statutory guidance on reporting on stewardship and other topics through the Statement of Investment Principles (SIP) and the Investment Statement (IS).
Changes made by the government include clarifying that The Pensions Regulator is the primary audience for the statements and amending the guidance to encourage schemes to consider producing member-facing summary versions of the statements.
The DWP also said it had updated the guidance to clarify that a “significant vote” is likely to be one linked to the scheme’s stewardship priorities and “we encourage schemes to think about the connection between the scheme’s wider stewardship priorities and the votes cast on the scheme’s behalf”.
Another change, according to the DWP, involved amending the guidance to clarify that trustees can use the selection and appointment processes to probe whether a prospective asset manager is willing to accept requests to vote on certain matters in a particular way.