Pensions minister Guy Opperman will establish a minister-led taskforce to identify “reliable data and metrics” to help schemes take social issues into account when investing members’ money.
This government response follows a consultation on how occupational scheme can identify the risks and opportunities in this area. While many scheme embrace ESG factors, much of comparable data identified to date has focused on enviromental issues, particularly in relation to carbon emissions and climate change.
Opportman warned trustees of occupational schemes that they risk failing members if they do not factor in “financially material” social factors when investing.
This initiative is part of a broader regulatory aim to improve the reporting standards for pension schemes on the full range of environmental, social and governance (ESG) factors.
Cushon director of policy and research Steve Watson says: “Collectively, UK pensions are worth over £2 trillion – so there’s huge potential for the industry to have a positive social impact.
“Alongside climate change, social impact is also important and so is a key focus of our investment strategy – we’re the first defined contribution provider to deliver impact across 100 per cent of the portfolio.
“Not only is there a moral argument to follow such strategies, but it also helps to spark engagement amongst pension members which is essential to improving financial outcomes. The new taskforce is a step in the right direction, and we look forward to engaging with Government on this.”
Commenting on this announcement AJ Bell head of retirement policy Tom Selby points out that ultimately pension scheme trustees have a fiduciary duty to invest in a way that maximises returns for members.
““There is a multi-trillion-pound wall of UK pension scheme money that, if effectively marshalled, has the potential to fundamentally shift the way companies around the world operate.
“It is therefore no surprise various interested parties – from governments to national treasure Sir David Attenborough – are focusing so closely on how pension schemes invest on behalf of millions of members.
“Much of this focus so far has centred on the ‘environmental’ part of ‘environmental, social and governance’ (ESG) investing.
“Social factors, by contrast, are notoriously tricky to pin down and require assessments to be made about whether a company, sector or country is acting in a way that is ‘good’ for society in the short, medium and long-term. This can feel a bit like the investing equivalent of catching smoke.
“By creating and leading a taskforce focused specifically on the ‘S’ of ‘ESG’, pensions minister Guy Opperman is hoping to provide tools schemes can use to track the social impact of investments, share best industry practice and, perhaps most importantly, drive all aspects of ESG investing up the agenda of UK pension schemes.”
He adds that Russia’s invasion of Ukraine encapsulates these ESG challenges.
“The situation that has emerged in Ukraine encapsulates the challenges inherent in ESG investing. Prior to Vladimir Putin’s invasion of the country, many would have argued that investments in weapons companies could not be associated with an ESG approach.
“However, many would now argue weapons being used to defend against an unwarranted and barbaric attack – as is clearly the case in Eastern Europe – are in fact enabling a social ‘good’.
“The government acknowledges the challenges inherent in both measuring social factors and choosing which factors to focus on. It is inevitable that what is deemed a positive or negative social factor will shift over time.”
He adds: “Environmental, social and governance issues are also often interlinked, with climate change potentially driving future challenges linked to food and job security.
“Given these complexities, perhaps the biggest role the Government can play is in corralling the industry and ensuring ESG remains front-and-centre of people’s thinking. However, it is ultimately the financial impact of these factors that will likely drive investors’ decision-making.”
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