“Responding to the Department of Work and Pensions’ consultation, Pension trustees: clarifying and strengthening investment duties “Whilst the proposals may be eye-catching at first glance, the content of the proposed regulatory changes is somewhat more modest. Contributor Stuart O’Brien, Partner – Sackers.
“The existing Investment Regulations currently require that, in a scheme’s Statement of Investment Principles, trustees must state the extent to which they take ‘social, environmental or ethical considerations’ into account.
This has long since been confusing, suggesting that managing ESG risks such as climate change is an ethical, rather than financial, issue. This is something the Law Commission identified as a source of confusion in their consultation on trustee fiduciary duties in 2014.
“We are therefore pleased to see the DWP proposing that in future, trustees will have to state their policy on taking account of “financially material” ESG factors. In this sense the wording of the regulations should be better aligned with what schemes look at in practice.
However, perhaps the most significant change will be in requiring trustees of defined contribution (DC) schemes to annually review how they have followed that policy over the last year. This is really going to push this onto the agendas of DC Trustees in a way that it perhaps hasn’t been to date.
“Slightly less helpful is yet another focus on members’ ethical views. Here the proposed regulations would require Trustees to publish a statement on the extent to which these are taken into account in setting a scheme’s investment strategy.
Whilst the regulations may be permissive and do not require trustees to actively seek member views in all cases, we fear that this regulation could prompt a rash of ill-thought through member surveys that distract trustees from focusing on ESG issues from a financial point of view.”
