ShareAction Calls On Pension Trustees To Step Up ESG Risk Management

ShareAction welcomes The Pensions Regulator’s new code of practice for defined contribution (DC) pension schemes, which has come into force today. The code applies to occupational trust-based schemes.

Following ShareAction’s extensive engagement with the regulator over the past year, we are delighted that the code and supporting guides strengthen guidance for pension fund trustees on the consideration of environmental, social and governance (ESG) factors.

The code itself includes a statement that the regulator expects pension trustees to take account of risks affecting the long-term financial sustainability of investments when setting investment strategies.

The accompanying Investment governance guide makes reference to the Law Commission’s 2014 review of fiduciary duty, and provides detailed explanations of how trustees should consider long-term sustainability. This guide pays particular attention to how trustees may take into account financial and non-financial ESG factors.

The guide reflects the Law Commission’s clarifications on fiduciary duty, which state that trustees should take into account ESG risks where they are financially material.

The UK Government launched a consultation on how to implement the Law Commission’s recommendations last year, which included a review of pensions investment regulations. However, the Government said there was insufficient consensus among consultation respondents for amending the regulations.

In practice, misconceptions about trustees’ legal duties to their beneficiaries remain widespread in the industry. Many schemes are failing to take material ESG issues like climate risk into account.

Rachel Haworth, Policy Officer at ShareAction, said: “The Pensions Regulator’s decision to include this guidance for trustees is extremely encouraging. The guidance for pension trustees is clear: they have a mandate to consider all risks that could affect the financial performance of their funds, and this includes ESG risks.”

The accompanying Communicating and reporting guide also provides detailed guidance on ways in which trustees can engage with pension scheme members and assess their views, following recommendations from ShareAction.

Jonathan Hoare, Director of Policy & Investor Networks at ShareAction, said:“We’re proud to have played an important role in helping shape the new guidance.  We are also delighted that it covers member engagement. Whilst some UK schemes already do a terrific job of listening to their members, they are few and far between. A truly responsible investment system looks after savers’ best interests both by considering the full range of risks that can affect their savings and by listening to people’s views. The new code is a crucial step towards the kind of system we want to see.”